Tax Remedies

TAX REMEDIES

Remedies of the Government

• The government employs various remedies to enforce its claims on taxes:

  1. Assessment

  2. Collection

ASSESSMENT

• Prescriptive Period

• Fraudulent Returns: Considered fraudulent if:

  • Gross income is understated by at least 30%

  • Deductions claimed are overstated by at least 30%

Steps in Assessment

1. Taxpayer Selection

   • Focus on high-risk industries (audit priorities)

   • Review tax information

   • Drive for tax compliance verification

   • Conduct pre-audit checks to confirm correctness of returns

2. Audit of Taxpayer

   • Authorization via Letter of Authority (LOA) granted by BIR for investigating taxpayer's books.

     • LOA is valid for 30 days from issuance.

     • Only one LOA per taxpayer.

Issuance of LOA

• RDO (Regional Director) issues LOA for non-large taxpayers.

• Large Taxpayer Service Audit Division (Asst. CIR) issues LOA for large taxpayers.

• National/Special Investigation Division (Commissioner) issues LOA for large cases.

• Tax Verification Notice: Authorizes revenue officer to examine taxes on one-time transactions.

  • Examples of One-Time Transactions:

    1. Donor’s tax

    2. Estate tax

    3. Capital gains tax

Letter Notice

• Inform taxpayers of significant discrepancies in their returns.

• Taxpayer must:

  • Provide reconciliation within 5 days.

  • Pay within 30 days if discrepancies exist.

Mode of Conduct of Investigation

• Conducted at the taxpayer’s place of business with a limit of 120 days from the LOA serving.

• Revalidation Possibilities:

  • RDO’s LOA can be revalidated only once.

  • National Office’s LOA can be revalidated twice.

• Exceptions for revalidation include:

  1. Fraud or irregularities

  2. Request for reinvestigation by taxpayer

  3. Verification of withholding tax obligation

  4. Verification of capital gains tax

  5. CIR’s power to obtain information for auditing

• Subpoenas:

  • Subpoena duces tecum: Require documents

  • Subpoena ad testificandum: Require testimony

Determination of Amount of Assessment

• Basic Tax Due: 25% surcharge

• Interest: 12% deficiency tax applies for unpaid amounts.

  • Calculation: Deficiency Tax + 25% surcharge + 12% deficiency interest.

Assessment Proper

• Jeopardy Assessment: Made without notice if the government suspects concealment of assets to avoid tax levies.

COLLECTION

After Assessment

• Prescriptive Period for Collection: 5 years from issuance of Final Assessment Notice (FAN).

Ways of Collecting

1. Summary Remedies: Involves forcible taking of properties.

   • Distraint: For personal properties.

   • Levy: For real properties.

2. Civil/Criminal Action: Applicable in cases without FAN.

   • Only civil/criminal action applies.

Stages/Steps of Collection (Summary Remedies)

• Remedies of the Taxpayer:

  1. Disputing assessment

  2. Recovery

DISPUTING AN ASSESSMENT

• For improper assessment, taxpayer must protest:

  • After FAN Protest: Must be done within 30 days.

  • Motion for Reinvestigation: Submit additional documents within 60 days.

  • Motion for Reconsideration: Can be done up to 180 days after assessment.

RECOVERY OF ERRONEOUSLY PAID TAX

• Process for recovering tax paid in error.

Remedies of the Government

ASSESSMENT

• Filing of Return: Must be completed within 3 years from filing or deadline, whichever is later.

COLLECTION

1. Summary Remedies

   • Distraint

   • Levy

2. Judicial Action

   • Civil action

   • Criminal Action

• Time frame: Within 3 years from date of assessment or receipt, if undated.

Non-filing or Fraudulent Return

• Action can be taken within 10 years from discovery of falsity or fraud.

• 5 years from date of assessment or receipt if undated.