TAXATION

FAR EASTERN UNIVERSITY – MANILA

TAX REMEDIES OF THE GOVERNMENT (2401)

Summary: Remedies of the government

a. Assessment of taxes
1. Time: within 3 years after the last day prescribed for its filing.

2. Computation of 3 years
a. If filed within the prescribed time – after the last day prescribed for each filing.
b. If filed beyond the prescribed time – from the date of filing the return

3. Exception to the period of 3 years

a. A false fraudulent return with intent to evade the tax within 10 years after discovery of falsity or fraud.
b. Failure or omission to file a return – within 10 years after discovery of the failure or omission.
c. Agreement in writing between the Commissioner and the taxpayer, before the expiration of the 3-year period.

b. Collection of taxes
1. Civil remedies for collection
a. Distraint on personal properties
b. Levy upon real property
c. Civil action
d. Criminal action

2. Time of collection
a. Within 5 years after the assessment of the tax.
b. Within the period agreed upon in writing before the expiration of the 5-year period.

c. Enforcement of a tax lien

d. Seizure and sale or destruction of forfeited chattels.
e. Non-issuance of a tax clearance certificate
f. Compromise
g. Any other action by the government to collect taxes.

Government Remedies The government is not totally at the mercy of taxpayers. The government can
resort to its legally mandated procedures to enforce the determination and
collection of the correct amount of tax from the taxpayers. These procedures
are referred to as ‘’government remedies’’
PRIMARY REMEDIES OF THE 1. Assessment
GOVERNMENT 2. Collection

Assessment is the act or process of determining the tax liability of a taxpayer in accordance with tax laws. Assessment also
pertains to the notice sent by the government to the taxpayer informing him of his unpaid or still unpaid tax obligation
coupled with a demand to pay the same.

Collection pertains to the procedures of the government to enforce payment of unpaid taxes from delinquent taxpayers.

ASSESSMENT

An assessment calling for the payment of a deficiency tax or unpaid tax can only be made after the government has established
the correct or the reasonably correct amount of tax of the taxpayer.

Powers of the CIR Relative to Tax the Determination of Correct Tax:

Relative to the determination of the correct taxes of the taxpayer, the Commissioner of Internal Revenue is empowered to:
a. To obtain data and information from third parties
b. To conduct inventory surveillance
c. To examine and inspect the books of accounts of a taxpayer
d. To prescribe presumptive gross sales and receipts

PRESCRIPTIVE PERIOD OF ASSESSMENT

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The law requires that assessment must be made within 3 years from the date of actual filing of the return or the deadline
required by law, whichever is later.

EXERCISES

Exercise 1: Early filing or filing on the deadline

Mr. X filed his 2014 annual income tax return which was due on April 15,2015 on March 1,2015. The government must serve
the assessment to the taxpayer on or before _____________________________

Exercise 2: Late filing

Assume instead that Mr. X filed his 2014 annual income tax return on July 1,2015. The assessment must be served on or
before____________________

Exception to the 3-year rule:

1. Fraudulent returns
2. No return was filed by the taxpayer.
In case of fraudulent returns and non-filing of return, the BIR has up to 10 years from the discovery of the fraud or non-filing of
returns to make assessment.
3. Waiver statutes of limitation by the taxpayer.
When the taxpayer requests for a reinvestigation of his assessment which is granted by the CIR, the CIR and the taxpayer usually
agrees for the temporary suspension of the prescriptive period for not less than 6 months to give way for the reinvestigation.

Summary of Prescription Rules: Deadlines of assessment

Deadline of assessment
With a return filed
- Return is non-fraudulent 3 years from date of filing or deadline whichever is late.
- Return is fraudulent 10 years from the discovery of fraud
Non-filing of tax return 10 years from the discovery of non-filing

List of Deadlines of Various Taxes:

24. Tax remedies of the government Page 2 of 16

A. Income Tax 1. Quarterly income tax
Returns a) Individuals –
Notes
(RR8-2018) SECTION 10. TIME OF FILING OF INDIVIDUAL INCOME TAX RETURN. -
Individuals engaged in business/practice of profession, regardless of amount of sales/receipts,
are required to file quarterly income tax return on or before May 15, August 15 and November i5
for the first, second and third quarters of the current year, respectively pursuant to Section 74(A)
of the Tax Code, as amended; and to file an annual income tax return, not later than fifteenth
(15th) day of the fourth month following the close of the calendar year or April 15 as provided
under Section 51(C)(1) of the Tax Code, as amended.

b) Corporations – within 60 days following the end of quarter

2. Annual income tax

a) Individual - April 15 of the following year
b) Corporation – on the 15th day of the fourth month following the end of the taxpayer’s year-end
1. BIR Form No. 1700 (Annual Income Tax Return for Individuals Earning Purely
version June 2013 Compensation Income);
2. BIR Form No. 1701 (Annual Income Tax Return for Self-Employed Individuals, Estates
version June 2013 and Trusts);
3. BIR Form No. 1702-RT (Annual Income Tax Return for Corporations, Partnerships and
version June 2013 Other Non-Individual Taxpayers Subject Only to the REGULAR
Income Tax Rate);

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 4. BIR Form No. 1702-EX (Annual Income Tax Return for Use Only by Corporations,
version June 2013 Partnerships and Other Non-Individual Taxpayers EXEMPT Under
the Tax Code, as amended, [Sec. 30 and those exempted in Sec.
27(C)] and Other Special Laws, with NO Other Taxable Income); and
5. BIR Form No. 1702-MX (Annual Income Tax Return for Corporations, Partnerships and
version June 2013 Other Non-Individuals with Mixed Income Subject to Multiple
Income Tax Rates or with Income Subject to Special/Preferential
Rate)

3.Capital gains tax return

1. Capital gains tax return on sale of domestic stocks-
a) Transactional return (BIR FORM 1707)- 30 days from the date of sale
b) Annual return (BIR FORM 1707 –A) - 15th day of the fourth month following the
end of the taxpayer’s year-end
2. Capital gains tax return on sale of real properties (BIR FORM 1706)– 30 days from the date of
sale

4. Withholding tax returns

1. Withholding of final tax (BIR FORM 1601 F) - 10 days following the month of withholding
and fringe benefits tax (BIR FORM 1603) -10 days of the month following the end of the calendar
quarter (manual filing )

2. Withholding tax on compensation income (BIR FORM 1601 C) and expanded withholding
tax (BIR FORM 1601 E)– 10 days from the end of each calendar month; for December,
January 15 of succeeding year
B. Transfer Tax 1. Donor’s tax (BIR FORM 1800) - within 30 days from date of the donation
Returns 2. Estate tax (BIR FORM 1801)- within 6 months from the date of decedent’s death

C. Business Tax 1) Non-VAT taxpayers

Returns 1) Monthly Percentage tax ( BIR FORM 2551M)- within 20 days of the following month
2) Quarterly Percentage tax ( BIR FORM 2551Q)- within 20 days of the following
month

2) VAT Taxpayers
1. Monthly Value Added Tax ( BIR FORM 2550M) – within 20 days of the following
month
2. Quarterly Value Added Tax ( BIR FORM 2550Q)- within 25 days of the following
month

D. Documentary Documentary stamp tax (BIR FORM 2000)-Within 5 days of the following month
stamp tax return
Except when late, the prescriptive period for assessment shall be counted from the aforementioned deadline of filing of the
tax type being assessed.

EXERCISES

Exerise 1:
Any unpaid tax for a donation made on July 1, 2014 must be assessed on or before __________________

Example 2:
Any unpaid VAT for the quarter ended August 31, 2015 must be assessed on or before ___________________

Taxpayer’s right to Any return, statement of declaration filed within any office authorized to receive the same shall
modify, change or not be withdrawn. Provided, that within 3 years from the date of such filing, the same may be
amend return modified, changed, or amended. Provided, further, that no notice for audit or investigation of
such return, statement or declaration has in the meantime been actually served upon the taxpayer.
(Sec.6 (A), NIRC)

STAGES OF ASSESSMENT

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1. Selection of taxpayer’s to be audited
2. Audit of the taxpayers
3. Assessment of taxpayers with unpaid or deficiency tax

SELECTION OF TAXPAYERS TO BE AUDITED

The BIR selects taxpayers to be audited based on selection criteria established in the BIR’s Annual Audit Program. The BIR
Annual Audit Program identifies high risk taxpayers and medium risk taxpayers to be the audit priority for each year.

The BIR may also identify taxpayers to be subjected to regular audit from the following:
a) Tax compliance verification drive
b) Information furnished by tax informers
c) Pre-audit of tax returns
d) Direct field observation by revenue officers

Tax Compliance Tax Information Pre-audited of Annual Income Tax Return

Verification Drive
Tax Compliance Verification Drive Taxpayers which could be Pre-audit is conducted to verify the following:
also known as Tax Mapping are subjected to regular detailed 1. Mathematical computations of income tax due and
intended to locate and identify audit may be identified payment
taxpayers who do not comply based on information 2. Correctness and applicability of exemptions claimed by
with basic tax requirements furnished by tax individuals against the registration records
such as registration, informants. Tax informants 3. Correctness and validity of deductions and expenses
bookkeeping or invoicing. are given reward based on subject to ceiling limitations
the taxes collected from 4. Validity of claims for income tax holiday, tax exemption
To enforce taxpayer such information and other claimed tax incentives
compliance, the BIR instituted 5. Correctness of the application of the minimum corporate
a program called ‘’ income tax
OplanKandado” (OK). 6. Claimed creditable withholding taxes against tax due and
Taxpayers’ business will be substantiation of claims through certificates of withholding
suspended or temporarily tax
closed for failure to comply 7. Correct utilization of tax credit certificates which should be
with tax regulations. duly supported by an approved Tax Debit Memo issued by
the authorized RDO
Tax compliance verification 8. Correctness of deductions claimed by taxpayers who opted
drive may also discover OSD
taxpayers with possible unpaid 9. Accuracy and applicability of the computation of the
taxes which may qualify for a NOLCO
detailed audit. 10. Completeness of the required attachment to annual ITRs

The pre-audit of tax return is not a regular audit. It is

conducted entirely within the BIR office without field
investigation.

If the pre-audit results to a deficiency tax, the revenue officer

prepares a memorandum report. The taxpayer shall be
informed via a letter to be signed by the RDO. The letter
shall state the deficiency tax as a result of the pre-audit and
shall require payments within 15 days.

If the taxpayer agrees to the deficiency tax , he shall pay using

the Payment Form( BIR Form 0605). If the taxpayer does not
pay the deficiency tax, the revenue officer will prepare a
report recommending the issuance of an assessment to the
taxpayer.

If the revenue officer recommends a thorough audit

investigation of the taxpayer, the taxpayer will be subject to a
regular audit.

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THE BIR TAX AUDIT PROCESS
1. Release of letter of authority (LA) to the revenue officer
2. Conduct of the audit investigation
3. Reporting on the results of examination

The BIR Tax Audit Process

1. RELEASE OF What is a Letter Authority?
LETTER OF
AUTHORITY A Letter of Authority (LA)is an official document that authorizes a BIR Revenue Officer to examine a
TO THE taxpayer’s books of accounts and other accounting records in order to determine his correct internal
REVENUE revenue tax liabilities.
OFFICER
Who issues and approves the LAS?

Investigating Office Approving Offical

Revenue District Office Regional Director
Large Taxpayer Service Audit Divisions Assistant Commissioner-LTS
National Investigation Divisions and Special Commissioner of Internal Revenue
Investigation Divisions

Requisites for the validity of an LA:

1. The LA must be served to the taxpayer within 30 days from its date of issuance.
2. The LA must be an electronic LA(eLA) printed under BIR Form 1966 issued under the BIR
Letter of Authority Monitoring System ( LAMS ).

Manual LAs are no longer allowed. Examiners or revenue officers who conduct audit investigation
without an eLA will be subjected to administrative sanctions.

Only one LA shall be issued to the taxpayer. Taxpayers who were inadvertently issued with multiple
LAS shall inform the concerned BIR officer and formalize his request for cancellation of the other LA.

Other BIR notices to taxpayers:

1. Tax verification notice (TVN)
2. Letter notice ( LN )

A Tax verification notice authorizes evaluation or verification of tax on one-time

transactions(ONETT) cases such as estate tax, donor’s tax and capital gains tax.

A Letter notice is a communication from the BIR national office informing the taxpayer of a finding of
significant discrepancy between sales/purchases reported in his tax return and information obtained by
the BIR from third parties.

Third party information may be taken by the BIR from Reconciliation of Listing for Enforcement System
(RELIEF) filing for other taxpayers including data gathered by other government agencies or
instrumentalities.

Data Matching Systems

The BIR national office embarked on a program called Data Matching which is basically a data mining
technique intended to match taxpayer’s reported data such as sales against data furnished by third parties
such as purchases of the taxpayer’s customers. Significant discrepancies or variances noted may indicate
the presence of unpaid taxes which must be checked.
Discrepancies noted by the matching systems are forwarded by the national office to the revenue district
office which has jurisdiction to the concerned taxpayer. The revenue district office will serve the LN to
the taxpayer.

Reconciliation of discrepancies
Taxpayers have 5 days from the receipt of the LN to reconcile the discrepancies noted therein. If the
taxpayer agrees to the finding of discrepancies, they must settle any resultant tax liability within 30 days
from the receipt of the LN.

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 Timely payment of the LN will entitle the taxpayer to abatement of corresponding surcharge, interest
and compromise penalty.

Consolidation of LN and eLA

Taxpayers who are selected for regular audit by the RDO may likewise be concurrently issued with an
LN by the national office. The LN in such case shall be consolidated with the eLA issued for such
examination.

LN payments may be claimed as tax credit

Taxpayers who are selected for regular audit may have paid taxes under an LN. The amount paid under
the LN may be considered as tax credit against any findings of deficiency under the eLA (regular audit)
to the extent that they pertain to the same issues.

2. CONDUCT The examination must be generally conducted in the place of business of the taxpayer.
OF THE AUDIT
EXAMINATION Period of investigation Revenue officers have up to 120 days counted from the date of
receipt of the eLA by the taxpayer in which to conduct the audit and
to submit his report of investigation. After the lapse of such period,
the eLA must be surrendered and may be revalidated when needed.
Frequency of revalidation eLAs may be revalidated once for those issued by regional Offices or
of LAs Revenue District Offices or twice in the case of LAs issued by the
National Office. Suspended eLAs must be attached to the new eLAs.

Frequency of taxpayer The taxpayer shall be subject to examination only once in every
examination taxable year, except when:
a. The CIR determined that fraud, irregularities, or mistakes were
committed by the taxpayer.
b. The taxpayer request for re-investigation or re-examination.
c. There is a need to verify the taxpayer’s compliance with
withholding tax and other internal revenue taxes
d. The taxpayer’s capital gain tax liabilities must be verified
e. The CIR exercises his power to obtain information relative to the
examination of other taxpayers

Power of the CIR to obtain information and to summon, examine and take testimony of persons
When after reasonable demands, certain documents, information or records are not forthcoming during
the examination, the BIR may issue subpoena to the taxpayer and or other person in possession of the
same to produce them.

Types of subpoena:
1. Subpoena A summon upon the taxpayer or other persons compelling them to produce,
ducestecum - under penalty of neglect, certain documents sought therein. This is usually issued
to the taxpayer after his failure to comply on two consecutive requests to produce
his books for examination.

2. Subpoena ad A summon upon a person to appear and to give oral testimony.

testificandum -

3. REPORTING After the examination, the revenue officer reports the results of his investigation.
ON THE
RESULTS OF Finding the Sufficient Basis of Assessment
THE When the BIR examination or verification determined that there exists a sufficient basis to assess the
EXAMINATION taxpayer for any deficiency tax or taxes, the revenue officer shall recommends in his report the issuance
of an assessment to the taxpayer.

ASSESSMENT OF THE TAXPAYER

The assessment stage may involve the issuances of the following notices in sequence:
1. Notice of Informal Conference (RR 7 -2018)
2. Pre – assessment Notice (PAN)

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 3. Formal Letter of Demand and Final Assessment (FLD/FAN)
4. Final Decision on a Disputed Assessment (FFDA)

What is a Notice of Informal Conference (NIC)?

A “Notice of Informal Conference” is a written notice informing a taxpayer that the findings of the audit conducted on
his books of accounts and accounting records indicate that there is a discrepancy in his tax payments which has to be
paid.

* RR 7-2018 Notice for lnformal Conference. - The Revenue Officer who audited the taxpayer's records shall, amonq others,
state in his report whether or not the taxpayer agrees with his findinqs that the taxpaver is liable for deficiency tax or taxes. lf the
taxpaver is not amenable, based on the said Officer's submitted report of investiqation, the taxpayer shall be informed, in writing, by
the Revenue District Office or by the Special investigation Division, as the case mav be (in the case of Revenue Reqional Offices) or
bv the Chief of Division concerned (in the case of the BIR National Office) of the discrepancv or discrepancies in the taxpaver's
pavment of his internal revenue taxes. for the purpose of "lnformal Conference," in order to afford the taxpaver with an opportunitv
to present his side of the case.

The lnformal Conference shall in no case extend beyond thirtv (30) davs from receipt of the notice for informal conference. lf it is
found that the taxpaver is still liable for deficiency tax or taxes after presentinq his side, and the taxpaver is not amenable, the
Revenue District Officer or the Chief of the Special lnvestiqation Division of the Revenue Reoional Office, or the Chief of Division in
the National Office, as the case mav be, shall endorse the case within seven (7) days from the conclusion of the lnformal
Conference to the Assessment Division of the Revenue Reqional Office or to the Commissioner or his dulv authorized representative
for issuance of a deficiencv tax assessment.

Failure on the part of Revenue Officers to complv with the periods indicated herein shall be meted with penaltv as provided bv
existinq laws, rules and regulations."

What is a Preliminary Assessment Notice (PAN)?

A PAN is a written communication issued by the Regional Assessment Division, or any other concerned BIR office informing
the taxpayer of his obligation for deficiency tax based on the audit findings of a revenue officer.

The taxpayer has up to 15 days from the receipt of the PAN to reply to the proposed assessment. It must be noted that the
PAN is not yet an assessment and does not establish a legal claim on the part of the government. However, the failure of the
taxpayer to reply to the PAN shall make the impending assessment final, demandable and non – appealable.

If the taxpayer’s agrees to the findings in the PAN and pays the tax, the BIR cancels the docket and a termination letter or
closure letter is sent to the taxpayer.

If the taxpayer merely responded that he disagrees with the findings of deficiency, a Formal Letter of Demand and Final Assessment
Notice (FLD/FAN) calling for payment of the tax deficiency will be issued to the taxpayer.

What is a Formal Letter of Demand and Final Assessment Notice (FLD/FAN)

An FLD/Fan is a final declaration of deficiency tax issued to a taxpayer:

a. who defaulted by failing to respond to the PAN within 15 days of its receipt
b. whose reply to the PAN is unmeritorious

The FLD/Fan shall be issued within 15 days from the filing or submission of the taxpayer’s response or within 15 days from
the issuance of the PAN in case the taxpayer failed to respond.

The issuance of an FLD/Fan to the taxpayer is tantamount to denial to the taxpayer’s reply to the PAN (Philippine Health Care
Ptoviders vs. CIR)

Requisites of a 1. The assessment must be served within the prescriptive period.

valid assessment 2. The assessment must inform the taxpayer of the discovery of unpaid or still unpaid tax
(FLD/FAN): coupled with a demand of the same including penalties.
3. The assessment must show in detail the facts and the law, rules and regulations, or
jurisprudence on which the assessment is based.
4. The assessment must be served through registered mail or by personal delivery and
acknowledged by the taxpayer or his duly authorized representative.
5. The assessment must be preceded by a pre – assessment notice.

An assessment which lacks any of these requisites is void. Hence, a “show – cause letter” or a letter
from a revenue officer granting the taxpayer an opportunity to disprove his audit findings is does not
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 quality, or substitute, an assessment.

Moreover, affidavit executed by revenue officers containing computations of deficiency taxes to

support the criminal complaint against a taxpayer is also not an assessment. (See CIR vs. Pastor Realty)

Instances where no PAN is required

The PAN is required as a matter of procedural due process for the taxpayer to be apprised of his obligation. Hence, a
FLD/Fan is generally void without a PAN.

However, a 1. When the finding of deficiency tax is the result of mathematical error in the computation of the tax
PAN is not appearing on the face of the tax return filed by the taxpayer;
required in the 2. When a discrepancy has been determined between the tax withheld and the amount actually
following remitted by the withholding agent;
cases: 3. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax
for a taxable period was determined to have carried over and automatically apllied the same
amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or
4. When the excise tax due on excisable articles has not been paid;
5. When an article locally purchased or imported by an exempt person, such as, but not limited to,
vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to
non – exempt persons.

An FLD/FAN is issued outright in the aforementioned exceptional cases. If the taxpayer pays the
FLD/FAN, the docket is cancelled by the BIR and a termination letter or closure letter is sent to the
taxpayer.

Jeopardy Assessment

Jeopardy assessment is one made by an authorized revenue officer without the benefit of a complete or partial audit in light of
the officer’s belief that the assessment and collection of a deficiency tax will be jeopardized by the delays caused by the
taxpayer to comply with audit and investigation requirements to present his book of accounts and pertinent records or
substantiate all of the deductions, exemptions or credit claimed in his return.

Dispute of Assessment

The FLD/FAN may be administratively protested by the taxpayer by filing a written protest to the BIR within 30 days upon
receipt thereof.

Types of Taxpayer’s Protest:

1. Request for reconsideration – a plea for a re – evaluation of an assessment on the basis of existing records without need
of additional evidence which may involve question of facts or of law or both.

2. Request for re – investigation – a plea for re – evaluation of an assessment on the basis of newly discovered or additional
evidence that the taxpayer intends to present in the reinvestigation which may also involve a question of fact or of law or both

In case of request for re – investigation, taxpayers are mandatorily required to submit relevant supporting documents within 60 days from the date of
filing of the protest. The taxpayer will be required to sign a “Waiver of the Statutes of Limitation” for a period of not less than 6 months to give way
for the re – investigation.

The BIR assessment division will settle question of facts. The BIR legal division will settle questions of law

The failure of the taxpayer to reasonably interpose a valid protest shall make the assessment final, executor and demandable
and no request for reconsideration or re – investigation shall be granted.

Finality of assessment on undisputed issues

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If the taxpayer disputes or protests only against the validity of some issues raised in the assessment, the assessment attributable
to the undisputed issue or issues shall become final, executor and demandable.

If the taxpayer failed to state the facts, the applicable law, rules and regulations or jurisprudence in support of his protest
against certain issues, the same shall be considered undisputed issues, in which case, the assessment attributable thereto shall
become final, executor and demandable.

The failure of the taxpayer to validly protest the FLD/FAN within 30 days upon release thereof shall result in the assessment
becoming final and executor.

In such case, the taxpayer shall lose his right to refute the findings, except when:
a. The taxpayer did not receive the FAN
b. The taxpayer availed of the amnesty program

It is also noteworthy to mention that the burden of proving that the assessment was actually received by the taxpayer rests
upon the government.

Final Decision on Disputed Assessment (FDDA)

The FDDA of the CIR may be communicated to the taxpayer within 180 days from the filing of his protest.
Resolution of the Protested Assessment:
If the protested assessment is The assessment is
a. Resolved in favor of the taxpayer Cancelled
b. Resolved with reduction of liability Revised
c. Sustained Enforced

Judicial Appeal

The FFDA of the CIR on a disputed assessment may be judicially protested by the taxpayer by filing a petition for review with the
Court of Tax Appeals after which an adverse ruling may be the subject of a petition for review on certiorari before the Supreme Court.
However, assessments that achieved administrative finality are enforceable by the BIR for collection.

COLLECTION

Collection will be enforced by the government once the assessment achieved finality under any of the following instances:
A. When the taxpayer defaulted in his administrative remedies
a. Failure of the taxpayer to seasonably respond to the PAN
b. Failure of the taxpayer to seasonably protest the FLD/FAN
B. Denial of the taxpayer’s protest by the CIR or his authorized representative
C. Whether or not on appeal, when the assessment is upheld by the court

Collection is enforceable once assessment became final and executory

Though valid and seasonably made, an appeal interposed by the taxpayer before the CTA does not suspend the payment, levy,
distraint and or slae of any property of the taxpayer for the satisfaction of his liability. (Sec 11, RA 1125, as amended by RA 9282)

Non – injunction of tax collection

No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or
charge imposed by the NIRC. (See Sec 218, NIRC). The CTA, however, is authorized to suspend the collection of taxes when it
may be jeopardize the interest of the taxpayer and or the government (Sec 11, RA 1125).

Payment under Protest

To avoid the imposition of interest, penalties or charges on a contested assessment, a taxpayer may pay the contested
assessment under protest. The taxpayer can file a claim for refund later when the disputed assessment is partially or wholly
decided in his favor.

Government Remedies to Enforce Collections:

1. Imposition of tax lien
2. Seizure of the taxpayer’s properties (distraint or levy)
3. Auction sale and or forfeiture of taxpaye’s properties
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 4. Filing of civil or criminal action against the taxpayer
5. Imposition of administrative penalties and fines
6. Suspension of business operations
7. Entering into tax compromise with the taxpayer

STAGES OF COLLECTION
1. Preliminary collection Letter
2. Final Notice before Seizure Letter
3. Warrant of Distraint/Levy or Garnishment
4. Research of Taxpayer properties
5. Notice of Tax Lien and or Notice of Tax Levy
6. Seizure of properties
7. Auction sale and or forfeiture of properties
8. Filing of civil or criminal action

STAGES OF COLLECTION
1. PRELIMINARY Once the assessment achieved finality, the BIR Collection Division will send the taxpayer a
COLLECTION Preliminary collection letter signed by the RDO who has jurisdiction to the taxpayer.
LETTER
The taxpayer may pay the assessment either by:
a. Lump sum payment
b. Installment payment
c. Compromise settlement
Note: Installment payment and compromise settlement are subject to approval by the BIR.

Installment payment offers the taxpayer a chance to settle the tax conveniently without causing him
cash flow problems. However, installments are subject to interest. Furthermore, the default of the
taxpayer in any installment will make the entire balance due and demandable. Compromise payment
offers the taxpayer a chance for a reduced tax payment but are granted only under rigid conditions.

The BIR will furnish the taxpayer a termination letter or closure letter upon full payment of the tax.

2. FINAL NOTICE Within 10 days from the issuance of the Preliminary Collection Letter, the BIR sends the taxpayer
BEFORE SEIZURE the Final Notice before Seizure Letter.
LETTER
If the taxpayer ignores the final notice, the BIR will resort to enforcement of administrative summary
remedies.

Summary of Remedies under NIRC:

1. Seizure of taxpayer’s property
a. Distraint
b. Levy
2. Civil or criminal action

Distraint – the seizure by the government of tangible or intangible personal property of the taxpayer
to enforce the collection of taxes

Levy – the seizure by the government of real properties of the taxpayer to enforce the collection of
taxes.

Garnishment – the seizure or distraint of interest such as bank accounts and credits owned by the
taxpayer

Either or both distraint and levy may be pursued by the authorities charged with the collection of the
tax.
3. WARRANT OF The Warrant of Distraint and or Levy (WDL) or a Warrant of Garnishment is served to the taxpayer after
DISTRAINT/LEVY his failure to respond to the Final Notice.

Limitation of the Warrant of Distraint and or Levy

1. Distraint or levy shall not be availed of where the amount of tax is not more than P100.
2. The WDL shall not be sent earlier than 90 days from the date the assessment has become
due and demandable.
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 Exception of the 90-day rule:
Delinquent taxes may be collected immediately by distraint or levy in cases where:
a. The amount shown in the return is not paid on time.
b. The individual taxpayer fails to pay the second installment of his income tax.

Distinction among Warrant of Distraint, Warrant of Levy and Warrant of Garnishment

Distraint Levy Garnishment
a. As to subject Personal property Real property owned Personal property
matter owned by and in by and in the owned by taxpayer but
possession of the possession of the in the possession of a
taxpayer. taxpayer. third party.

b. As to Purchased by the Forfeited to the Purchased by

disposition for Government then Government then sold Government then
want of bidders or resold to meet to meet the deficiency. resold to meet
bids deficiency. deficiency.
inadequate to
satisfy tax
deficiency
c. As to No advertisement is Advertised once a No advertisement is
advertisement for required. week for three weeks. required.
sale

Problem:

Miss Malou Lugui was assessed with tax liability of P250,000 exclusive of penalty. The financial
status of Miss Lugui when the demand for payment is as follows:

Total properties:
Real Property P200,000
Personal Property 100,000
Total liabilities, exclusive of tax 150,000

Required:
a. Assuming that a distraint proceeding was carried out instead, which of the above properties would
be issued with warrant of distraint?

b. If all the properties of Miss Lugui have a realizable value of P200,000 after payment of her
P150,000 liabilities and possible cost of the proceedings, would it be possible for the government to
carry out the distraint and levy proceeding simultaneously to effect the conversion of Miss Lugui’s
assets into cash?

c. If, after the properties of Miss Lugui were sold in public auction only P200,000 was realized and
used as payment of her tax liabilities, would this extinguish the unpaid tax liabilities of Miss Lugui?
4. RESEARCH OF If the taxpayer fails to pay his delinquent accounts after the service of the WDL, the revenue officer
TAXPAYER shall look for properties of the taxpayer that can be attached to his tax liabilities.
PROPERTIES
Taxpayer properties may be identified from records of the City’s Assessor’s Office, Registry of
Deeds, Land Transportation Office, Securities and Exchange Commission, business bureaus and
local banks.

5. NOTICE OF The Notice of Tax Lien or Notice of Levy is used to validate the legal claims or charge of the government
TAX LIEN (NTL) on identified property of the taxpayer either personal or real, as security for the payment of his tax
OR NOTICE OF liability.
LEVY
The tax liens are annotated at the back of the title document of the property in the case of real
property.

Tax liens will make the government a priority claimant on the identified properties of the delinquent

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 taxpayer.
6. SEIZURE OF Distraint of Personal Property
PROPERTIES
Who shall conduct the distraint?
1) Amount of delinquent tax is more than Commissioner or his duly authorize
P1,000,000. representative.
2) Amount of delinquent tax is Revenue District Officer.
P1,000,000 or less.

Extent of Properties to be Distraint

Personal properties such as goods, chattels, effects, stocks and other securities, debts, credits, bank
accounts an interest or rights to personal properties shall be seized in sufficient quantity to cover the
following:
a. Tax due
b. Penalties and interests
c. Expenses of distraint
d. Costs of selling the properties

Constructive Distraint

By constructive distraint, the government freezes the taxpayer's property by requiring the taxpayer or
the person having possession or control of the property to sign a receipt obligating him to preserve
the same intact and unaltered and not to dispose it without the express authority of the CIR.

In case the taxpayer or the person having the possession and control of the property sought to be
placed under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue
officer effecting the constructive distraint shall proceed to prepare a list of such property and, in the
presence of two witnessed, leave a copy thereof in the premises where the property distrained is
located, after which the said property shall be deemed placed under constructive distraint.

When constructive distraint be made?

The purpose of constructive distraint is to protect the interest of the government when, in the
opinion of the CIR, the taxpayer is:
a. retiring from a business subject to tax
b. intending to leave the Philippines
c. intending to remove his property or conceal the same
d. intending to perform an act tending to obstruct the proceedings for collecting the tax due from
him

Distinction Between Actual and Constructive Distraint

Actual Distraint Constructive Distraint
1) Personal property is physically taken. 1) Personal property is not physically taken.
2) The taxpayer is already delinquent in 2) There is no leaving yet of a discrepancy, only that
payment of his taxes. the taxpayer is leaving the country or disposing of his
property in fraud of creditors or is in the process of
liquidation.
3) Personal property taken is sold to 3) Personal property is merely held as security to
satisfy the tax delinquency. answer for any future tax delinquency.

Whom the warrant of distraint or garnishment is served?

1. For goods, chattels, or effects, or other personal properties - to the possessor of the goods distrained.
2. For stocks and other securities - to the taxpayer and upon the president, manager, treasurer or
responsible officer of the corporation, company or association which issued the said stock.
3. For debts and credits - to the person owning the debts or having in possession or under his control
such credit, or with his agent.
4. For bank accounts - to the president, manager, treasurer, cashier, or other responsible officials.

Levy on Real Property

The revenue officer shall prepare a duly authenticated certificate showing the name of the taxpayer

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 and the amount of tax and penalty due from him and indicate therein the description of the property
upon which the levy is made. Said certificate shall operate with the force of a legal execution
throughout the Philippines.

Levy on real property may be done before, simultaneous or after the distraint of personal property.

Problem Constructive Distraint

A taxpayer's property was placed under a constructive distraint. The property was originally acquired
for P400,000 and at the time of constructive distraint, it has accumulated depreciation of P200,000.
If the taxpayer sold the said property for P250,000 without the consent of the BIR Commissioner,
how much is the minimum statutory fine that the BIR can impose against him?

7. AUCTION SALE AUCTION SALE OF SEIZED PROPERTY

AND FOREITURE
OF PROPERTIES Seized properties will be sold at auction sale if the taxpayer didn’t settle the delinquent tax. Within 20
days from levy, revenue officer conducting the proceeding shall advertise the property for auction
sale for at least 30 days. The property shall be awarded to the highest bidder.

The proceeds of the sale shall be used to satisfy the taxpayer's unpaid tax liabilities. The excess
proceeds of the sale shall be returned to the taxpayer.

FORFEITURE OF TAXPAYER'S PROPERTY

When the amounts offered by bidders in two consecutive auction sales fail to raise sufficient amount
to cover the taxpayer's liability, the government will forfeit the property. Title to forfeited properties
will be consolidated in the name of the Republic of the Philippines.

Taxpayer's right of redemption

The taxpayer has up to one year from the date of auction sale or forfeiture within which to redeem
the property.
Redemption of property sold
1) The property sold may be redeemed by the delinquent taxpayer within one year from the date of sale
by paying:
a) the amount of public taxes,
b) penalties and
c) interest thereon from the date of delinquent to the date of sale with
d) 15% interest per annum from the date of purchase to the date redemption. (Sec. 214, NIRC).
2) The owner shall not be deprived of the possession of the property sold and shall be entitled to the
rents and rent income thereof until the expiration of the time allowed for redemption.

Further distraint or Levy

Further distraint or levy may be made when the proceeds of the auction sale fail to satisfy the unpaid
tax.

Problem Levy of Real Property

After proper proceedings, the real property of X was levied by the government to satisfy his tax
liability which has been delinquent for 5 years. The real property is a boarding house with an average
income of P60,000 per month. X received the total amount of assessment as follows:
Basic income tax unpaid P 1,000,000
Surcharge (P1,000,000 x 50%) 500,000
Interest (P1,000,000 x 20% x 5years) 1,000,000
Total amount due per assessment, October 15, 200A P 2,500,000

The property was sold for public auction for P4,000,000 on January 15, 200B. Cost of advertisement
amounts to P20,000. It was stipulated in the contract that the related capital gains tax and
documentary stamp tax shall be paid by X.

Required:

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 1. How much is the excess amount of the sale over the claim and cost of sale that should be turned
over to X?

2. If X decided to redeem the real property on October 15, 200B, how much is the redemption
price?

3. How much is the excess income of the real property over the interest expense from the time of
auction sale to the time of redemption?

8. CIVIL OR The government may alternatively or simultaneously pursue filing civil or criminal action against the
CRIMINAL taxpayer with the summary remedies of distraint or levy.
ACTION
The RATE Program
To prosecute criminal violations of the NIRC, the BIR instituted the "Run After Tax Evaders
(RATE) Program." The RATE program is intended to identify and prosecute high-profile tax
evaders. Known personalities such as celebrities are usually targeted with RATE cases- an effort
commonly perceived as a deliberate display of the BIR's serious resolve for erring taxpayers.

Assessment is not necessary for criminal prosecution

Assessment is not a requirement in the prosecution of criminal cases for violation of internal revenue
laws. The judgment in the criminal case shall not only impose the penalty but shall also order
payment of the taxes subject of the criminal case as finally decided by the Commissioner.

Hence, collection of tax may be made without a prior assessment if there is a criminal intent to evade
payment of taxes such as in the case of:
a. filing a fraudulent return
b. willful neglect to file a return

A return is generally deemed fraudulent when there is:

a. failure to report an income exceeding 30% of that declared per return
b. overstatement of deductions exceeding 30% of actual allowable deductions

Civil and criminal actions and proceedings instituted in behalf of the government under the authority
of the NIRC and other laws enforced by the BIR shall be brought in the name of the Government
of the Philippines and shall be conducted by legal officers of the BIR. No civil or criminal action for
the recovery of taxes or enforcement of any fine, penalty or forfeiture under the code shall be filed in
court without the authority of the CIR.

PRESCRIPTIVE PERIOD OF COLLECTION

The government has 5 years from the date of release of the final assessment to the taxpayer to make collection.
When the demand letter is undated, the 5-year prescriptive period is counted from the date of receipt of assessment notice.

EXERCISES
Exercise 1: On July 15,2015, Mr. A filed his 2014 income tax return which should have been filed April 15,2015. He paid the
tax on Aug. 15,2015. The BIR issued a deficiency assessment on Aug. 2,2017.

The deadline to enforce collection shall be on or before_______________

Exercise 2: On March 3,2015, the BIR sent an undated assessment letter. The assessment covers the unpaid estate tax of a
decedent which should have been paid March 5,2014. The estate administrator received the assessment on March 18,2015.

24. Tax remedies of the government Page 15 of 16

The deadline to enforce collection shall be on or before _______________

Exercise 3: The taxpayer didn’t file an income tax return for the year 2001. The BIR discovered the non-filing on May
4,2008. The BIR issued a delinquency assessment on July 15,2010.

The deadline to enforce collection is on or before ___________________

Exercise 4: A fraudulent VAT return for the third quarter of 2003 was filed on October 25, 2003. It was discovered on
November 10, 2004. When is the last day for the government to collect through judicial proceedings?

Suspension of the Statutes of Limitation

The prescriptive period for assessment and collection may be suspended under the following circumstances:
a. Request for reinvestigation of the taxpayer which is granted by the CIR
b. When the CIR is prohibited from making an assessment or from beginning distraint or levy or a proceedings in court.
c. When the taxpayer can't be located in the address given by him
d. When the warrant of restraint or levy is served and no properties can be located.
e. When the taxpayer is out of the Philippines.

Note:
1. Suspension shall run for the period during which the CIR is so prohibited plus 60 days thereafter
2. If the taxpayer is informed the CIR of any change in address, the running of the statutes of limitation will not be suspended.

Summary of Prescription Rules: Collection

Deadline of collection Mode of collection
w/ a prior assessment 5 years from assessment Summary proceedings/Judicial action
w/o a prior assessment 10 years from discovery of fraud or falsity Judicial action only

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