Tax Remedies

ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

TAX REMEDIES
 Actions available to:
o State  The BIR or government in enforcing collection of the proper taxes; or
o Taxpayer  The taxpayer in defending himself or itself against the unlawful enforcement
of tax laws.

SUMMARY OF REMEDIES AVAILABLE: (see De Vera Book 2 for Quick Notes)

Remedies of the State / Government in Remedies of the Taxpayers:

Collecting Taxes:  These are legal actions which a
 These are courses of actions provided taxpayer can avail to seek relief from
by or allowed in the law to implement the undue or oppressive effect of tax
the tax laws or enforce tax collection. laws, or as a means to check possible
 Administrative remedies  refer to excesses by revenue officers in the
government remedies at the performance of their duties.
administration level through BIR  Remedies before payment:
a) Distraint of personal property 1. Administrative protest
b) Levy of real property 2. Request for reconsideration
c) Enforcement of forfeiture 3. Request for reinvestigation
d) Enforcement of tax lien 4. Judicial protest
e) Compromise  Remedies after payment:
f) Civil penalties 1. Claim for refund
 Judicial remedies  refer to remedies 2. Claim for tax credit
of the government to enforce through

REMEDIES OF THE STATE (Assessment & Collection)

\
A. ASSESSMENT

 Tax Assessment  is the official action of an officer authorized by law in ascertaining the
amount of tax due under the law from a taxpayer. This action necessarily involves:
a. The computation of the sum due
b. Giving notice to that effect to the taxpayer
c. The making, simultaneously with or sometime after giving the notice, of a demand upon him for
the payment of the tax deficiency stated.
o Assessment is the notice given to the taxpayer that the correct taxes have not been paid
and demanding payment. The assessment must state the facts and the law on which its
conclusion is based.

 Kinds of Assessment
a. Self-assessment  the tax is assessed by the taxpayer himself
b. Deficiency assessment  the tax is assessed by the tax assessor himself
c. Void assessment  an assessment wherein the tax assessor has no power to act at all
d. Erroneous assessment  an assessment wherein the assessor has the power to assess but
omits an error in the exercise of that power.

 Time of Assessment (Prescriptive Periods for Assessment)

o General Rule: Within 3 years after the (1) last day prescribed by law for filing; or (2) from
the date of filing the return, whichever comes later.
o Exemption: The 3-year period can be extended in the following cases:
a) In cases where a false or fraudulent return with intent to evade the tax is filed:
o Period of assessment  within 10 years after the discovery of the falsity or
fraud.
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

b) Where there is a failure or omission to file a return

o Period of assessment  within 10 years after the discovery of the failure or
omission.
c) Within any period agreed upon by the taxpayer and the Commissioner of the
BIR. Provided, such agreement is 'entered into before the expiration of the 3-y ear
period for assessment

 Tax Audit  is the process of examining, going over or scrutinizing the books and records of the
taxpayer to ascertain the correctness of the tax declared and paid by the taxpayer. It can only
be performed upon a “Letter of Authority” issued by the commissioner of BIR or Regional
Director.

 Requirements of Letter of Authority (LoA) and Audit:

a. ITR attached to LoA
b. No erasures on LoA
c. LoA shall cover only one year, 2008 and unverified prior years is not allowed
d. Audit must be completed within 120 days, unless revalidated for another 120 days
e. Only revenue officers named in LA are authorized to look at books and records
f. Audit must be done generally in taxpayer’s place of business

B. COLLECTION  (1), (2), & (3) may be pursued simultaneously

1. By distraint (seizure) of personal property

o Distraint  is a proceeding against the personal property if the taxpayer, the property to
be sold at public auction, and the proceeds if the sale to be applied to the payment of
tax.
 Seizure of goods, chattels, or effects, and the personal property, including stocks and
other securities, debts, credits, bank accounts, and interests in and rights to personal
property in sufficient quantity to satisfy the tax, or charge, together with any
increment thereto incident to delinquency, and the expenses of the distraint and the
cost of the subsequent sale.
o The property may be offered in a public sale, if taxes are not voluntarily paid.
o Distraint may be actual or constructive (see Tabag page 382)
 Actual distraint  actual physical taking of the property
 Constructive distraint  prohibiting the taxpayer to dispose of the personal
property that will be held answerable for the tax.

2. By levy of real property

o Levy  is a proceeding against the real property of the taxpayer, the property to be sold
at public auction and the proceeds of the sale to be applied to the payment of the tax.
 Levy refers to the seizure of real properties and interests in or rights to
properties for the satisfaction of taxes due from the delinquent taxpayer.
 The property may be offered in a public sale, if taxes are not voluntarily paid.
It can be made before, simultaneously, or after distraint
o The BIR shall prepare a duly authenticated certificate showing the name of the taxpayer
and the amounts of the tax and penalty due from him. Said certificate shall operate with
the force of a legal execution throughout the Philippines.
o Levy shall be effected by writing upon said certificate a description of the property upon
which levy is made. At the same time, written notice of the levy shall be mailed to or
served upon the Register of Deeds of the province or city where the property is located
and upon the delinquent taxpayer.
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

 Enforcement of Tax Lien  When a taxpayer refuses or neglects to pay the tax, a lien accrues
against all properties and property rights of the taxpayer. However, such tax lien shall not be
valid against any mortgagee, purchaser, or judgment creditor until the notice of lien is filed with
the Register of Deeds.
o A tax lien is a legal claim or charge on property, whether real or personal, established by
law as a source of security for the payment of tax obligations. It is more extensive in
scope and is superior to all other claims or preferences.
o In seizure for the enforcement of tax lien, the residue, after deducting the tax liability
and expenses, will go to the taxpayer. In forfeiture, all the proceeds of the sale will go to
the coffers of the government.

 Forfeiture  is the divestiture of property without compensation, in consequence of a default or

offense. The forfeiture of chattels and removal of fixtures of any sort shall be enforced by the
seizure and sale, or destruction of the specific forfeited property. The forfeiture of real property
shall be enforces by a judgement of condemnation and sale in a legal action or proceeding civil,
or criminal, as the case may be.
3. By court action (civil or criminal)
a) Civil Action — for the collection of taxes; filed within 5 years of assessment.
1) With the Regional Trial Court, Municipal Trial Court — if principal amount of taxes
(exclusive of charges and penalties) is less than P1,000,000,
2) With the (Court of Tax Appeal — if the principal amount of taxes (exclusive of
charges and penalties) is greater than P1,000,000
b) Criminal actions — for the enforcement of penal provisions; filed within 5 years of
assessment; may be filed during the pendency of an administrative protest in the BIR.

 Suspension of Running of Statute of Limitations  The running of the Statute of Limitations in the
assessment and the beginning of distraint or levy or a proceeding in court for collection shall be
suspended:
(a) For the period during which the Commissioner is prohibited from making the assessment or
beginning distraint or levy or proceeding in court and for 60 days thereafter;
(b) When the taxpayer requests for a reinvestigation which is granted by the Commissioner;
(c) When the taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected However, the running of the Statute of Limitations
will not be suspended if the taxpayer informs the Commissioner of any change in address;
(d) When the warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no property could
be located; and
(e) When the taxpayer is out of the Philippines.

 Other Notes:
 Deficiency tax assessments of P1.00 or less, excluding surcharge and interest, shall no longer be
assessed nor be collected, except where, in a single investigation, several assessments are made
against the taxpayer and the total deficiency tax assessments, excluding surcharge and interest,
exceeds P100.
 General Rule: 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 Tax Code.
o Exemptions: The CTA can grant a 'MO/Injunction when
1) The collection of the tax may jeopardize the interest of the government or of the
taxpayer, or both;
2) The amount claimed is deposited with the court, or a surety bond for not more
than double the amount of the tax is filed with the court; and
3) The appeal is not frivolous nor dilatory.
 Time of Collection:
1. Within 5 years following the assessment; or
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

2. Within the period agreed upon between the taxpayer and the Commissioner before
the expiration of the 5-year period; or
3. Within 10 years after the discovery of the fraud, falsity, or omission even without
assessment thru a proceeding in court.
 Criminal Liability  Within 5 years from the commission or discovery of the
violation, whichever is later.

C) ALLOCATION OF INCOME AND DEDUCTIONS BY THE COMMISSIONER (SECTION 50)

 In the case of two or more Organizations, trades, or businesses (whether or not incorporated and
whether Or not organized in the Philippines) owned or controlled directly or indirectly by the same
interests, the Commissioner is authorized to distribute, apportion, or allocate gross income or
deductions between or among such organization, trade, or business, if he determines that such
distribution, apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to
reflect the income of such organization, trade, or business (Sec. 50, NIRC).
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

REMEDIES OF THE TAXPAYER

Pre-assessment Notice or
Preliminary Assessment Notice
("PAN") Required
 When the Commissioner or
his duly authorized
representative finds that
proper taxes should be
assessed, he shall first
notify the taxpayer of his
findings in a Preliminary
Assessment Notice (PAN).
The PAN shall show in detail
the facts and the law or
jurisprudence on which the
proposed assessment is
based.
 If the taxpayer fails to
respond to the pre-
assessment notice or PAN or
disagrees therewith, the
Commissioner or his duly
authorized representative
shall issue the Formal Letter
of Demand and Final
Assessment Notice
("FLD/FAN").
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

 The FLD/FAN shall state the facts, the law, rules and regulations, or jurisprudence on which
the assessment is based; otherwise, the assessment shall be void.

Remedies Against Assessment

1) Where Tax Has Not Been Paid

2) Where Tax Has Been Paid

3) Filing a criminal action against the erring or

abusive BIR official

4) Apply for a TRO or injunction with the CTA

REMEDIES AVAILABLE TO THE STATE AND TAXPAYER

A. Compromise
 mutual concession or settlement which can be entered into by the BIR and the taxpayer
even if a case has been filed in court.
 A contract whereby the parties, by reciprocal concessions, avoid a litigation or put an end to
one already commenced. It involves reduction of a taxpayers liability.
 there is an offer to pay the taxpayer and an acceptance by the Commissioner.
 called a compromise penalty if paid in lieu of criminal prosecution

Grounds for Compromise:

1) Reasonable doubt as to the validity of the claim against the taxpayer:
a) The delinquent account or disputed assessment is one resulting from a jeopardy
assessment;
b) The assessment is lacking in legal and/or factual basis; or
c) The taxpayer failed to file an administrative protest on account of the alleged failure
to receive notice of assessment, or
d) The demand notice allegedly failed to comply with the formalities prescribed under
Section 228 of the Tax Code; or •
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

e) The assessment was made based on the "Best Evidence Obtainable Rule" under
Section 6(B) of the Tax Code, and there is reason to believe that the same can be
disputed by sufficient and competent evidence; or
f) The assessment was issued within the prescriptive period for assessment as
extended by the taxpayer's execution of a Waiver of the Statute of Limitations.
However, the validity or authenticity of such waiver is being questioned or at issue,
and there is strong reason to believe and evidence to prove that the same is not
authentic; or
g) The assessment is based on an issue where a court of competent jurisdiction has
made an adverse decision against the BIR. However, the Supreme Court has not
decided upon the case with finality.
2) Financial inability of the taxpayer to pay  the compromise must be accompanied by a
waiver under the Secrecy of Bank Deposit Law.

Amounts of Compromise Settlement  The BIR has a schedule of compromise penalties for
various violations of the Tax Code. A compromise penalty may differ than the prescribed
amounts as long it is approved by the Commissioner, but shall not go below the following
minimum amounts:
(a) For cases of financial incapacity, a minimum compromise rate equivalent to 10 of the
basic assessed tax.
(b) For other cases (doubtful validity), a minimum compromise rate equivalent to 40% of
the basic assessed tax.

Approval of the Compromise

(a) Where the basic tax involved exceeds P1,000,000, or
(b) Where the settlement offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the National Evaluation Board ("NEW')
which shall be composed of the Commissioner and 4 Deputy Commissioners.

Cases Which May Not Be Compromised

(a) Withholding tax cases, in general;
(b) Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or
his duly authorized representative;
(c) Criminal violations already filed in court;
(d) Delinquent accounts with duly approved schedule of installment payments;
(e) Cases where final reports of reinvestigation or reconsideration have been issued
resulting to reduction in the original assessment, and the taxpayer is agreeable to such
decision by signing the required agreement form for the purpose;
(f) In general, (a) cases which have become final and executory (except where compromise
is requested on the ground of financial incapacity) and (b) estate tax cases (except
where compromise is requested on the ground of doubtful validity of the assessment).

B. Abate or Cancel a Tax Liability  the Commissioner has the authority to abate or cancel the
surcharge, interest and compromise penalties.

Grounds to Abate or Cancel a Tax Liability

(1) The tax or any portion thereof appears to be unjustly or excessively assessed.

The following are instances when the penalties and/or interest imposed on the taxpayer may
be abated or cancelled on the ground that the imposition thereof is unjust or excessive: .
(a) When the filing of the return or payment of the tax is made at the wrong venue
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

(b) When the taxpayer's mistake in payment of his tax is due to the erroneous written
official advice of a revenue officer;
(c) When the taxpayer fails to file the return and pay the tax on time due to substantial
losses from prolonged labor dispute, force majeure, or legitimate business reverses,
or to other circumstances beyond the control of the taxpayer. However, the
abatement shall only cover the surcharge and the compromise penalty, and not the
interest imposed under Section 249 of the Tax Code.
(d) When the assessment is the result of taxpayer's non-complianoe with the law due to
a difficult interpretation of said law.

(2) The administration and collection costs involved do not justify the collection of the amount
due.

MODE OF PROCEDURES IN THE ISSUANCE OF A DEFICIENCY TAX ASSESSMENT:

1. Letter of Authority (LOA)  is an official document that empowers the Revenue Officer to
examine and scrutinize a taxpayer’s books of accounts and other accounting records, in order to
determine the taxpayer’s correct internal revenue tax liabilities. In the absence of such an
authority, the assessment or examination is null.

2. Notice for informal conference  a written statement issued by the BIR informing the
taxpayer of the discrepancies in the taxpayer’s tax payments for the purpose of conducting an
informal conference wherein the taxpayer will be given an opportunity to present his side of the
case.
o The Revenue Officer who audited the taxpayer's records shall, among others, state in his report
whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or
taxes. If the taxpayer is not amenable, based on the said Officer's submitted report of
investigation, the taxpayer shall be informed, in writing, by the Revenue District Office or by the
Special Investigation Division, as the case may be (in the case Revenue Regional Offices)or by the
Chief of Division concerned (in the case of the BIR National Office) of the discrepancy or
discrepancies in the taxpayer's payment of his internal revenue taxes, for the purpose of "Informal
Conference," in order to afford the taxpayer with an opportunity to present his side of the case.
o [RR12 - 99]  If the taxpayer fails to respond within 15 days from date of receipt of the notice for
informal conference, he shall be considered in default, in which case, the Revenue District Officer
or the Chief of the Special Investigation Division of the Revenue Regional Office, or the Chief of
Division in the National Office, as the case may be, shall endorse the case with the least possible
delay to the Assessment Division of the Revenue Regional Office or to the Commissioner or his
duly authorized representative, as the case may be, for appropriate review and issuance of a
deficiency tax assessment, if warranted.
o [RR18 -13]  Repealed
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

o [RR 7-2018, TRAIN]  Restored  The informal Conference shall in no case extend beyond 30
days from receipt of the notice for informal conference. lf it is found that the taxpayer is still liable
for deficiency tax or taxes after presenting his side, and the taxpayer is not amenable, the
Revenue District Officer or the Chief of the Special investigation Division of the Revenue Regional
Office, or the Chief of Division in the National Office, as the case may be, shall endorse the case
within 7days from the conclusion of the informal Conference to the Assessment Division of the
Revenue Regional Office or to the Commissioner or his duly authorized representative for issuance
of a deficiency tax assessment. Failure on the part of Revenue Officers to comply with the periods
indicated herein shall be meted with penalty as provided by existing laws, rules and regulations.

3. Preliminary Assessment Notice (PAN)  is a written notice given to a taxpayer informing

him of the findings of the BIR officer/s relating to the deficiency in his tax return, indicating
therein the law and the facts on which the assessment is made and requiring the taxpayer to
respond within a given period, otherwise, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.
o If after review and evaluation by the Commissioner or his duly authorized representative, it is
determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes,
the said Office shall issue to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed
assessment.
 If the taxpayer fails to respond within 15 days from date of receipt of the PAN 
he shall be considered in default  in which case, a Formal Letter of Demand and Final
Assessment Notice (FLD/FAN) shall be issued calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties.
 Submission of Protest Letter  If the taxpayer, within 15 days from date of receipt
of the PAN, responds that he/it disagrees with the findings of deficiency tax or taxes, an
FLD/FAN shall be issued within 15 days from filing/submission of the taxpayer’s
response, calling for payment of the taxpayer's deficiency tax liability, inclusive of the
applicable penalties.

o When is PAN not required?  A Final Letter of Demand (FLD) or Final Assessment Notice (FAN)
shall be issued outright under the following cited cases:
i. When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer; or
ii. When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
iii. 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 applied the
same amount claimed against the estimated tax liabilities for the taxable quarter or
quarters of the succeeding taxable year; or
iv. When the excise tax due on excisable articles has not been paid; or
v. 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.

4. Formal Letter of Demand and Final Assessment Notice (FLD/FAN)  shall be issued by
the Commissioner or his duly authorized representative. The FLD/FAN calling for payment of the
taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based; otherwise, the assessment shall be void.

5. Disputed Assessment  The taxpayer or its authorized representative or tax agent may
protest administratively against the aforesaid FLD/FAN within 30 days from date of receipt
thereof. The taxpayer protesting an assessment may file a written request for reconsideration or
reinvestigation defined as follows:

o Request for reconsideration — refers to a plea of re-evaluation of an assessment on

the basis of existing records without need of 3 additional evidence. It may involve both a
question of fact or of law or both.
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

o Request for reinvestigation — refers to a plea of re-evaluation of an assessment on

the basis of newly discovered or additional evidence that a taxpayer intends to present
in the reinvestigation. It may also involve a question of fact or of law or both.
 The taxpayer shall state in his protest  (i) the nature of protest whether reconsideration or
reinvestigation, specifying newly discovered or additional evidence he intends to present if it
is a request for reinvestigation, (ii) date of the assessment notice, and (iii) the applicable
law, rules and regulations, or jurisprudence on which his protest is based, otherwise, his
protest shall be considered void and without force and effect.

 Several Issues in FLD/FAN

 If there are several issues involved in the FLD/FAN but the taxpayer only disputes or
protests against the validity of some of the issues raised  the assessment
attributable to the undisputed issue or issues shall become final, executory and
demandable; and the taxpayer shall be required to pay the deficiency tax or taxes
attributable thereto, in which case, a collection letter shall be issued to the taxpayer
calling for payment of the said deficiency tax or taxes, inclusive of the applicable
surcharge and/or interest.
 If there are several issues involved in the disputed assessment and the taxpayer fails
to state the facts, the applicable law, rules and regulations, or jurisprudence in
support of his protest against some of the several issues on which the assessment is
based, the same shall be considered undisputed issue or issues, in which case, the
assessment attributable thereto shall become final, executory and demandable; and
the taxpayer shall be required to pay the deficiency tax or taxes attributable thereto
and a collection letter shall be issued to the taxpayer calling for payment of the said
deficiency tax, inclusive of the applicable surcharge and/or interest.

 For requests for reinvestigation

1. The taxpayer shall submit all relevant supporting documents in support of his protest
within 60 days from date of filing of his letter of protest, otherwise, the assessment
shall become final.
 The term “relevant supporting documents” refer to those documents
necessary to support the legal and factual bases in disputing a tax assessment
as determined by the taxpayer.
 Furthermore, the term “the assessment shall become final” shall mean the
taxpayer is barred from disputing the correctness of the issued assessment by
introduction of newly discovered or additional evidence, and the FDDA shall
consequently be denied.
2. The 60-day period for the submission of all relevant supporting documents shall not
apply to requests for reconsideration.

 Failure to File a Valid Protest  if the taxpayer fails to file a valid protest against the
FLD/FAN within 30 days from date of receipt thereof, the assessment shall become final,
executory and demandable.
o No request for reconsideration or reinvestigation shall be granted on tax
assessments that have already become final, executory and demandable.

 If the protest is denied, in whole or in part, by the Commissioner’s duly

authorized representative: the taxpayer may either:
1. Appeal to the Court of Tax Appeals (CTA) within thirty (30) days from date of receipt
of the said decision; or
2. Elevate his protest through request for reconsideration to the Commissioner within
thirty (30) days from date of receipt of the said decision. No request for
reinvestigation shall be allowed in administrative appeal and only issues raised in the
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

decision of the Commissioner’s duly authorized representative shall be entertained

by the Commissioner.

 If the protest is not acted upon by the Commissioner’s duly authorized

representative
o within 180 days counted from the date of filing of the protest in case of a request
reconsideration; or
o from date of submission by the taxpayer of the required documents within 60 days
from the date of filing of the protest in case of a request for reinvestigation
o the taxpayer may either:
1. Appeal to the CTA within 30 days after the expiration of the one hundred eighty
(180)-day period; or
2. Await the final decision of the Commissioner’s duly authorized representative on
the disputed assessment.

 If the protest or administrative appeal, as the case may be, is denied, in whole or
in part, by the Commissioner  the taxpayer may appeal to the CTA within 30 days from
date of receipt of the said decision. Otherwise, the assessment shall become final, executory
and demandable.
1. A motion for reconsideration of the Commissioner’s denial of the protest or
administrative appeal, as the case may be, shall not toll the 30-day period to
appeal to the CTA.

 If the protest or administrative appeal is not acted upon by the Commissioner

within 180 days counted from the date of filing of the protest  the taxpayer may either:
1. Appeal to the CTA within 30 days from after the expiration of the 180-day period;
or
2. Await the final decision of the Commissioner on the disputed assessment and
appeal such final decision to the CTA within 30 days after the receipt of a copy of
such decision.
 It must be emphasized, however, that in case of inaction on protested assessment
within the 180-day period  the option of the taxpayer to either (1) or (2) are mutually
exclusive and the resort to one bars the application of the other.
1. File a petition for review with the CTA within 30 days after the expiration of the
180-day period; or
2. Await the final decision of the Commissioner or his duly authorized representative
on the disputed assessment and appeal such final decision to the CTA within 30
days after the receipt of a copy of such decision

6. Final Decision on a Disputed Assessment (FDDA) — the decision of the Commissioner or

his duly authorized representative shall state the (i) facts, the applicable law, rules and
regulations, or jurisprudence on which such decision is based, otherwise, the decision shall be
void and (ii) that the same is his final decision.

Modes of Service — the notice (PAN/FLD/FAN/FDDA) to the taxpayer herein required may be
served by the Commissioner or his duly authorized representative through the following modes:
 The notice shall be served through personal service by delivering personally a copy thereof to the party at
his registered or known address or wherever he may be found. A known address shall mean a place other
than the registered address where business activities of the party are conducted or his place of residence.
o In case personal service is not practicable, the notice shall be served by substituted service or by
mail.
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

 Substituted service can be resorted to when the party is not present at the registered or known address
under the following circumstances:
o The notice may be left at the party’s registered address, with his clerk or with a person having
charge thereof.
o If the known address is a place where business activities of the party are conducted, the notice
may be left with his clerk or with a person having charge thereof.
o If the known address is the place of residence, substituted service can be made by leaving the
copy with a person of legal age residing therein.
o If no person is found in the party’s registered or known address, the revenue officers concerned
shall bring a barangay official and 2 disinterested witnesses to the address so that they may
personally observe and attest to such absence. The notice shall then be given to said barangay
official. Such facts shall be contained in the bottom portion of the notice, as well as the names,
official position and signatures of the witnesses. Should the party be found at his registered or
known address or any other place but refuse to receive the notice, the revenue officers concerned
shall bring a barangay official and 2 disinterested witnesses in the presence of the party so that
they may personally observe and attest to such act of refusal. The notice shall then be given to
said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as
the names, official position and signatures of the witnesses.
 “Disinterested witnesses” refers to persons of legal age other than employees of the
Bureau of Internal Revenue.
 Service by mail is done by sending a copy of the notice by registered mail to the registered or known
address of the party with instruction to the Postmaster to return the mail to the sender after 10 days, if
undelivered. A copy of the notice may also be sent through reputable professional courier service. If no
registry or reputable professional courier service is available in the locality of the addressee, service may
be done by ordinary mail.
o The server shall accomplish the bottom portion of the notice. He shall also make a written report
under oath before a Notary Public or any person authorized to administer oath under Section 14 of
the NIRC, as amended, setting forth the manner, place and date of service, the name of the
person/barangay official/professional courier service company who received the same and such
other relevant information. The registry receipt issued by the post office or the official receipt
issued by the professional courier company containing sufficiently identifiable details of the
transaction shall constitute sufficient proof of mailing and shall be attached to the case docket.
 Service to the tax agent/practitioner, who is appointed by the taxpayer under circumstances prescribed in
the pertinent regulations on accreditation of tax agents, shall be deemed service to the taxpayer.”

STATUTORY OFFENSES AND PENALTIES

 The additions to the tax or deficiency tax prescribed in this Chapter shall apply to all taxes,
fees and charges imposed in this Code. The Amount so added to the tax shall be collected at
the same time, in the same manner and as part of the tax.
 If the withholding agent is the Government or any of its agencies, political subdivisions or
instrumentalities, or a government-owned or controlled corporation, the employee thereof
responsible for the withholding and remittance of the tax shall be personally liable for the
additions to the tax prescribed herein.
 The term 'person', as used in this Chapter, includes an officer or employee of a corporation
who as such officer, employee or member is under a duty to perform the act in respect of
which the violation occurs.

CIVIL PENALTIES

25% Surcharge. There shall be imposed, in addition to the basic tax required to be paid, a penalty
equivalent to 25% in any the following cases:
 Failure to file any return and pay the tax due thereon as required under the provisions of this
Code or rules and regulations on the date prescribed; or
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

 Unless otherwise authorized by the Commissioner, filing a return with an internal revenue
officer other than those with whom the return is required to be filed; or
 Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment; or
 Failure to pay the full or part of the amount of tax shown on any return required to be filed
under the provisions of this Code or rules and regulations, or the full amount of tax due for
which no return is required to be filed, on or before the date prescribed for its payment.

50% Surcharge.
 In case of willful neglect to file the return within the period prescribed by the Code, or in
case a false or fraudulent return is willfully made, the penalty to be imposed shall be 50% of
the tax or of the deficiency tax, in case any payment has been made on the basis of such
return before the discovery of the falsity or fraud:
o Provided, That a substantial underdeclaration of taxable sales, receipts or income, or
a substantial overstatement of deductions, as determined by the Commissioner or his
duly authorized representative  shall constitute prima facie evidence of a false or
fraudulent return:
o Provided, further, That failure to report sales, receipts or income in an amount
exceeding 30% of that declared per return, and a claim of deductions in an amount
exceeding 30% of actual deductions, shall render the taxpayer liable for substantial
underdeclaration of sales, receipts or income or for overstatement of deductions, as
mentioned herein:
o Provided, further, that the term "willful neglect to file the return within the period
prescribed by the Code" shall not apply in case the taxpayer, without notice from the
Commissioner or his authorized representative, voluntarily files the said return, in
which case, only 25% surcharge shall be imposed for late filing and late payment of
the tax in lieu of the above 50% surcharge. Conversely, the 50%surcharge shall be
imposed in case the taxpayer files the return only after prior notice in writing from
the Commissioner or his duly authorized representative.
 Section 6 (A) of the Code provides that any tax return filed by a taxpayer "may be modified,
changed or amended" by the taxpayer "within 3 years from date of such filing" provided,
however, that "no notice for audit or investigation of such return, statement or declaration
has, in the meantime, been actually served upon the taxpayer." Thus, if upon investigation,
it is determined that the taxpayer's originally filed tax return is false or fraudulent, such
taxpayer shall remain liable to the 50% civil penalty regardless that the taxpayer has filed
his amended tax return, if the said amended tax return, however, has been filed only after
issuance of the Letter of Authority for the investigation of the taxpayer's tax return or such
amendment has been made in the course of the said investigation.

INTEREST PENALTY
 In General.
o Old  20% per annum on any unpaid amount of tax or such higher rate as may
be prescribed by rules and regulations, from the date prescribed for payment
until the amount is fully paid.
o TRAIN  Twice the legal rate set by the BSP on any unpaid amount of tax
from the date prescribed for payment
 Provided that in no case deficiency and delinquency interest be imposed
simultaneously.
 Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code,
shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be
assessed and collected from the date prescribed for its payment until the full payment
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

thereof. [TRAIN: or upon issuance of notice and demand by the BIR, whichever comes
earlier.]

 Delinquency Interest. - In case of failure to pay:

1) The amount of the tax due on any return to be filed, or
2) The amount of the tax due for which no return is required, or
3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in
the notice and demand of the Commissioner, there shall be assessed and collected
on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until
the amount is fully paid, which interest shall form part of the tax.2

 Interest on Extended Payment. - If any person required to pay the tax is qualified and
elects to pay the tax on installment under the provisions of this Code, but fails to pay the
tax or any installment hereof, or any part of such amount or installment on or before the
date prescribed for its payment, or where the Commissioner has authorized an extension of
time within which to pay a tax or a deficiency tax or any part thereof, there shall be
assessed and collected interest at the rate hereinabove prescribed on the tax or deficiency
tax or any part thereof unpaid from the date of notice and demand until it is paid.

MODE OF PROCEDURES IN COMPUTING FOR THE TAX AND/OR APPLICABLE

SURCHARGE
Shown hereunder are illustrative cases for the computation and assessment of the tax,
inclusive of surcharge (if applicable) and interest

1. Late filing and late payment of the tax.

Illustration: Income tax return for the calendar year 1998 was due for filing on April 15, 1999
but the taxpayer voluntarily filed his tax return, without notice from the BIR, only on June 30,
1999. The tax due per return amounts to P100,000. In this case, the taxpayer shall be liable
for delinquency penalties consisting of 25% surcharge, plus 20% interest per annum,
computed from due date of the tax until date of payment, computed as follows:

Only one 25% surcharge shall be imposed for late filing of the return and late payment of
the tax

2. The tax return is filed on time but filed through an internal revenue officer other
than with whom the return is required to be filed.
Tax Remedies
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NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

Illustration: The taxpayer's 1998income tax return is

required to be filed through the authorized agent bank
under the jurisdiction of RDO East Makati. But, without
prior authorization from the BIR, the taxpayer filed his
tax return and paid the tax through the authorized
agent bank under the jurisdiction of RDO Davao City.
Tax due and paid per return is P100,000.00.

3. Late filing and late payment due to taxpayer's willful neglect.

Illustration: The taxpayer did not file his income tax return for the calendar year 1997 which
was due for filing on April 15, 1998. He was notified by the BIR of his failure to file the tax
return, for which reason, he filed his tax return and paid the tax, only after the said notice,
on June 30, 1999. The tax due per return is P100,000.00.

4. Penalty or penalties for deficiency tax. As a rule, no surcharge is imposed on deficiency

tax and on the basic tax. However, if the amount due inclusive of penalties is not paid on or
before the due date stated on the demand letter, the corresponding surcharge shall be
imposed.

Illustration No. 1: Taxpayer filed on time his

income tax return for calendar year 1997and
paid P100,000.00 on April 15, 1998. Upon pre-
audit of his return, it was disclosed that he
erroneously computed the tax due. The correct
amount of tax due is P120,000.00. The taxpayer
is assessed for deficiency income tax in a letter of demand and assessment notice issued on
June 30, 1999.
Illustration No. 2: ABC CORPORATION filed its income tax return for calendar year 1997
and paid on time its income tax shown thereunder, amounting to P100,000. Said taxpayer
was investigated. Upon verification of its accounting records, it was disclosed that its
deduction, from gross income, of representation expenses in the amount of P200,000.00 did
not meet all the statutory requisites for deductibility. The corporation was duly notified of
the said discrepancy through a Preliminary Assessment Notice. Based on the 35% income
tax rate on corporations applicable in the year 1997, the income tax due after investigation
amounts to P170,000.00. After deduction of income tax paid per return filed, the basic
deficiency income tax amounts to P70,000, excluding penalties. Failing to protest on time
against the preliminary assessment notice, a formal letter of demand and assessment notice
Tax Remedies
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NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

was issued on May 31, 1999, requiring payment of the

assessment not later than June 30, 1999.

Illustration No. 3: XYZ CORPORATION filed its income

tax return for calendar year 1997 with a net taxable
income of P500,000.00. At the applicable income tax rate
of 35%for the year 1997, its income tax amounted to
P175,000.00. However, upon investigation, it was disclosed that its income tax return was
false or fraudulent because it did not report a taxable income amounting to another
P500,000.00. On its net income of P1,000,000.00, per investigation, the income tax due is
P350,000.00. Deducting its payment per return filed, the deficiency, excluding penalties,
amounted to P175,000.00. It was duly informed of this finding through a Preliminary
Assessment Notice. Failing to protest on time against the preliminary assessment notice, a
formal letter of demand and assessment notice was issued on May 31, 1999 calling for
payment of the deficiency income tax on or before June 30, 1999.
In this case, said corporation is liable for the civil penalties of 50% surcharge for having filed
a false or fraudulent return, plus 20% interest per annum on the deficiency, computed as
follows:

5.
Late payment of a deficiency tax assessed. – In general, the deficiency tax assessed shall
be paid by the taxpayer within the time prescribed in the notice and demand, otherwise,
such taxpayer shall be liable for the delinquency interest incident to late payment.

Illustration 1: Based on the above Illustration No. 3, Scenario 4, assuming that the
calendar year 1997 deficiency income tax assessment against XYZ CORPORATION, in the
amount of P304,771.67, is not paid by June 30, 1999, the deadline for payment of the
assessment, and assuming further that this assessment has already become final and
collectible. In this case, such corporation shall be considered late in payment of the said
assessment. Assuming, further, that the corporation pays its tax assessment only by July 31,
1999, the delinquency interest for late payment shall be computed as follows:
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

Illustration 2: Based on the immediately preceding Illustration, assuming that the calendar
year 1997 deficiency income tax assessment against XYZ CORPORATION, in the amount of
P304,771.67, is not paid by June 30, 1999, the deadline for payment of the assessment but
is instead timely protested. Assuming further that after exhaustion of all administrative
remedies, the assessment was upheld and became final, executory and demandable on July
1, 2000. However, payment was made by the taxpayer only on June 30, 2002. In this case,
such corporation shall be considered late in payment of the said assessment. The civil
penalties for late payment shall be computed as follows:

Illustration 3: Assuming that in calendar year 1997, XYZ CORPORATION filed a false or
fraudulent return and was assessed of deficiency basic income tax amounting to
Php100,000. Assuming further that XYZ CORPORATION timely protested the said
assessment. After exhaustion of all administrative remedies, the assessment was upheld
and became final, executory and demandable on April 15, 2001. However, payment was
made by the taxpayer only on April 15, 2003.In this case, such corporation shall be
Tax Remedies
ACCTAX2
NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

considered late in payment of the said assessment. The civil penalties for late payment shall
be computed as follows:

Computation of 20% interest per annum in case of partial or installment payment of a

tax liability.

Illustration No. 1: In case extended payment of the tax is duly authorized. DEF
CORPORATION, due to financial incapacity, requested that it be allowed to pay its income tax
liability per return for calendar year 1998, in the amount of P1,000,000.00, in four (4)
monthly installments, starting April 15, 1999. Its request has been duly approved pursuant
to Sec. 53 of the Tax Code. In this case, no 25% surcharge shall be imposed for late payment
of the tax since its deadline for payment has been duly extended. However, 20% interest per
annum for the extended payment shall be imposed, computed based on the diminishing
balance of the "unpaid amount", pursuant to the provisions of Section 249 (D) of the Code.
No 25% surcharge on extended payment shall be imposed provided, however, that the
taxpayer's request for extension of the period within which to pay is made on or before the
deadline prescribed for payment of the tax due. Conversely, if such request is made after
the deadline prescribed for payment, the taxpayer shall already be treated late in payment,
in which case, the 25% surcharge shall be imposed, even if payment of the delinquency be
allowed in partial amortization.
Tax Remedies
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NIRC Sec. 202 to 230; 247 to 268 [TRAIN, 249 254 264 (new A & B)
269]

Illustration No. 2: Computation of tax delinquency in case of partial payment of the tax
due without prior BIR authorization for extended payment. Example: GHI CORPORATION did
not file its final adjustment income tax return for the calendar year 1998 which was due on
April 15, 1999. The BIR informed the corporation of its failure to file its said tax return and
required that it file the same, inclusive of the25% surcharge and 20% interest per annum
penalties incident to the said omission. On May 15, 1999 it advised that its income tax due
for the said year amounts toP1,000,000.00 but, however, due to its adverse financial
condition at the moment, it will be unable to pay the entire amount, inclusive of the
delinquency penalties. Hence, on May 15, 1999, it made a partial payment of P400,000.00.
Assuming that the BIR demanded payment of the unpaid balance of its tax obligation
payable by June 15, 1999, the unpaid balance of the corporation's delinquent income tax
shall be computed as follows:

If the said taxpayer fails to pay the amount of P811,111.17 by June 15, 1999, no further
25% surcharge for late payment of the tax shall be imposed. Instead, only the
20%interest per annum shall be imposed against the taxpayer against the taxpayer,
computed from due date thereof (i.e., June 15, 1999) until paid. If said taxpayer pays the
same on partial payment basis, the 20% interest per annum shall be computed on the
diminishing balance thereof, pursuant to the procedures in the preceding Illustration No.
1, Section6.6 hereof