Unit II - Tax Remedies PDF

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UNIT II - TAX REMEDIESDefinition of terms:Tax remedies:  On part of the taxpayer – courses of legal actions which the taxpayer can avail of to seek relief from the assessment made by revenue officers.  On the part of the government – the courses of action allowed in the law to enforce tax collecti...

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UNIT II - TAX REMEDIES Definition of terms: Tax remedies:  On part of the taxpayer – courses of legal actions which the taxpayer can avail of to seek relief from the assessment made by revenue officers.  On the part of the government – the courses of action allowed in the law to enforce tax collection. Tax Assessment  is an official action of an officer authorized by law in ascertaining the amount of tax due under the law from a taxpayer.  process of determining the correct amount of the tax due in accordance with the prevailing tax laws. Tax audit – 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. Assessment Period – period in processing, appraising and determining he value of he subject of taxation, including the computation of tax prescriptions, surcharges and interest to arrive at the specific sum of tax charged on a person or property. Letter of Authority (LOA) – is an official document that empowers a Revenue Officer to examine, scrutinize a taxpayer’s books of account 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 and void. Pre-Assessment notice (PAN) – is written notice given to a taxpayer informing him of the findings of the BIR officer(s) relating to a 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 of his dully authorized representative shall issue an assessment based on his findings. Formal Letter of Demand (FLD) and Final Assessment Notice (FAN)  is a formal demand or notice sent to the taxpayer requiring payment within a specified time of the tax due from him including interest and civil penalties.  shall be issued by the CIR or his duly authorized representatives. Request for reconsideration – a plea of re-evaluation of an assessment on the basis of existing records without need of additional evidence or supporting documents. It may involve both a question of fact or law. Request for reinvestigation - a plea of re-evaluation of an assessment on the basis of a newly discovered or additional evidence or documents that a taxpayer intends to present in the reinvestigation. It may also involve both a question of fact or law.

TAX ASSESSMENT

Taxpayer’s Assessment (thru tax returns)

Government’s Assessment (Before and after payments of tax)

Taxpayer’s assessment - taxpayer reports his own assessment of his tax liability in his tax return to the Internal revenue office. (Tax return filed by the taxpayer)

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assessment could be made 1. Before a tax return is filed a. after prescription period expired b. if the taxpayer intends to leave the country or close business (Jeopardy Assessment) 2. After a fraudulent tax return is uncovered.

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When is the government tax assessment made? a) When ITR filed by taxpayer filed an accurate return –  within 3- year prescription period 1. after the due date 2. from the day the return was filed, where a return is filed beyond the due date. Note: A return filed before the due date shall be considered as filed on such due date. 

before the expiration of the 3-year prescription period, the BIR and the taxpayer may agree on the period of assessment. (Sec. 22 (b) NIRC)

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Jeopardy Assessment, if the taxpayer: a) retires from business b) leaves the country.

b) When taxpayer filed a fraudulent return or return not filed –  within 10 –year prescription period when the BIR discovers the falsity, fraud or omission of the taxpayer’s tax return.

Assessment Process: 1. Tax audit or Investigation  Examination of the books accounts of the taxpayer by the revenue officer who has the Letter of Authority (LOA). In the absence of LOA, the assessment is a null and void.  Persons authorized to issue LOA:  If taxpayer is a. under National Office - Commissioner of Internal Revenue b. If taxpayer is under regional offices - Regional Director  Tax Cases need not covered by LOA: a. Cases involving civil or criminal tax fraud which fall under the National Investigation Division under the Enforcement and Advocacy Services of the BIR; b. Policy cases under audit by the special teams in the National Office. 2. Issuance of Preliminary Assessment Notice (PAN)  Issuance of PAN to the taxpayer informing him of the findings of revenue officer.  The PAN shall be in writing and show in detail the facts and the law, rules and regulations on which the proposed assessment is based, otherwise the assessment is void.  The taxpayer has 15 days to reply contesting the findings in the PAN. Failure to reply, the BIR will issued FAN and FLD. 3. Issuance of Final Assessment Notice and Final Letter of Demand  Issued when: a. The taxpayer failed to respond; or b. The reply to the PAN was found to be without merit BIR’s Denial of Protest 1. Direct denial of protest 2. Indirect denial of protest – if the CIR or his duly authorized representative fails to act on the taxpayer’s protest within 180 days from the date of submission, the protest may be considered denied.

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REMEDIES OF THE TAXPAYER Remedies before payment 1. administrative protest 2. request for reconsideration 3. request for reinvestigation 4. judicial protest Remedies after payment 1. claim for refund 2. claim for tax credit 1. Notice for Informal conference ♦ sent by the Revenue Officer to the taxpayer with noted discrepancy ♦ the taxpayer is given 15 days to respond from date of receipt of the notice. ♦ failure to respond will warrant endorsement to Assessment Division of the Revenue Office for appropriate review. 2. Preliminary Assessment Notice (PAN) – ♦ shall be served to the taxpayer or through registered mail – if the result of the review conducted by the Administrative Division has established sufficient basis to assess the taxpayer for any deficiency. ♦ the taxpayer is given 15 days from receipt thereof to contest the amount being assessed. ♦ failure to respond will warrant the issuance of Formal Letter of Demand of Payment together with the assessment showing the computation inclusive of the applicable penalties. 3. Formal letter of demand  to be responded by the taxpayer within 30 days. a) Protest the Assessment The taxpayer shall file a request for reconsideration or reinvestigation with the BIR within 30 days from receipt of the assessment notice.  Failure to file a request for reconsideration or reinvestigation within 30 days , the assessment shall become final.

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Submit all relevant supporting documents to the BIR within 60 days from filling of protest, (in case of request for reinvestigation) otherwise the assessment shall become final. Note: There is now a 180 day requirement for the BIR to decide on an administrative appeal.

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Appeal to the Court of Tax Appeal if the protests is denied in whole or in part by the Commissioner, the taxpayer may appeal to the Court of Tax Appeal within 30 days from the receipt of letter of denial or unfavourable decision. File an appeal to the CTA within 30 days from the lapse of 180 days period, If CIR or his duly authorized representative fails to act on the protest Failure to appeal to the CTA shall make the BIR’s decision final, executor and demandab If the appeal is denied by CTA division, file a Motion for Reconsideration (MR) before the same CTA division within 15 days from the receipt of the decision.

c) Appeal to the CTA En Banc If the MR is denied, file an appeal with the CTA en banc within 15 days from the receipt of the decision. If the appeal is denied by the CTA en banc, file MR to the CTA en banc within 15 days from the receipt of the decision.

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d. Appeal to the Supreme Court Division  If the MR is denied by the CTA en banc, file an appeal with the Supreme Court Division with 15 days from the receipt of CTA en banc decision  If the appeal is denied by the SC division, file MR to the SC division within 15 days from the receipt of the decision. e. Appeal to the Supreme Court En Banc  If the MR is denied by the SC division , file an appeal with the Supreme Court En Bancwith 15 days from the receipt of CTA en banc decision  If the appeal is denied by the SC en banc, file MR to the SC En banc within 15 days from the receipt of the decision.  If MR is denied by SC En Banc, there is no more remedy, the assessment shall become final, executory and demandable. Remedy Against an Erroneously or Illegally paid Tax a. File a formal Claim for refund  After payment, a request for actual return in cash of erroneously or illegally collected taxes should be made through filing claim for tax refund. Notes: 1. The request for tax credit or tax refund shall be filed with the Commissioner within 2 years after the payment of tax or penalty . 2. If applying a tax credit – the 2-year period starts when the tax crediting was allowed. A partial payment of the tax cannot be the subject to a claim for refund. 3. In any case, no such suit or proceedings shall be filed after the expiration of 2 years from the date of payment of tax or penalty regardless of any new effective cause that may arise after payment. 4. Even without a written claim, the BIR Commissioner may refund or credit any tax if, on the face of the return which payment was made, it appears clearly to have been erroneously paid. b. Submit all relevant supporting documents to the BIR .  Submit relevant documents within 60 days from filling of claim for refund. c) Appeal to the Court of Tax Appeal  File an appeal with CTA, raising questions of facts and/or law within 30 days ( but within the 2-year period required for filing a formal claim for refund) 1. from the receipt of the adverse (unfavourable) decision, or 2. from the lapse of the 180 day period. Note: 1. If the tax is paid in instalments, the 2-year period shall be counted from the date of final payment. 2. The filing for claim for mrefund with the BIR and the institution of judicial action with CTA to recover the tax can be dome either simultaneously or one after the other within the 2-year period to protect the interest of the taxpayer. 3. Failure to appeal to the CTA shall make the BI’s decision final, executor and demandable. g) appeal to the CTA en banc  15 days from the date of receipt of a CTA division. Refund or credit Even without written claim and forfeiture of refund a. Refund or credit Even without written claim The Commissioner may, even without written claim therefore refund or credit any tax, where the face of the return upon which payment was made, such payment appears clearly to have been paid. b. Forfeiture of refund A refund check or warrant which shall remain unclaimed or uncashed within 5 years from the date the said warrant or check was mailed or delivered, shall be forfeited in favor of the government and the amount shall revert to the general fund

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c. Forfeiture of Tax Credit: A tax credit certificate issued, which shall remain unutilized after 5 years from the date of issue, shall, unless revalidated , be considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer, and the amount covered by the certificate will revert to the general fund. Instances that Suspend the Running of the Two-year Peremptory period. a. If the Commissioner made the taxpayer asking for refund believe that he would be credited for the overpayment. b. If there is an agreement between the taxpayer and the amount of the Commissioner that they would wait for the decision of the SC to guide them in the settlement of question or questions involved in the fraud. Court of Tax Appeals (CTA) a) Creation of CTA R.A. 1125 – the Law creating CTA - as amended by R.A. 9282 which took effect April 22, 2004, which expands the jurisdiction of the CTA. The CTA shall be the same level as the Court of Appeals, possessing all inherent powers of Court of Justice (Sec. 1 R.A. No. 1125, as amemded by R.A. 9282 b) Composition of CTA The CTA shall consist of a Presiding Justice and eight (8) Associate Justices (Sec. R.A.1125, as amended by R.A. 9503, June 12, 2008. c) Sitting enbanc or division The CTA en banc or in three Division, each Division consisting of three Justices (Sec. 2 -R.A.1125 an amended by R.A. 9503) d) What will constitute a Quorum? Five justices shall constitute a quorum for session en banc and 2 justices for session of division (Sec. 2, R.A. 1125 as amended by R.A. 9503.) e) Rendition of a decision or resolution The affirmative votes of 5 members of the Court en banc shall be necessary to reverse a decision of a Division but a simple majority of the Justices present necessary to promulgate resolution or decision in all cases or two (2) members of a Division, as the case may be, shall be necessary for the rendition of a decision or resolution in the division level. (Sec. 2, R.A. 1125 as amended by R.A. 9503.) f)

Jurisdiction of the CTA (Sec. 7 of R.A.112 as amended : The CTA shall exercise; 1. Exclusive appellate jurisdiction to review by appeal 2. Jurisdiction over cases involving criminal offenses. 3. Jurisdiction over tax collection cases

g) Exclusive appellate jurisdiction The CTA shall exercise exclusive appellate jurisdiction to review by appeal: 1. Decision of the CIR in cases involving disputed assessments, refunds of internal revenues, fees and other charges, penalties in relation thereto, or other matters arising under NIRC or other laws administered by the BIR; 2. Inaction by the CIR in cases involving disputed assessments, refunds of internal revenues, fees and other charges, penalties in relation thereto, or other matters arising under NIRC or other laws administered by the BIR, where the NIRC provides a specific period action 3. Jurisdiction over cases involving criminal offenses. 4. Jurisdiction over tax collection cases

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REMEDIES OF THE GOVERNMENT: Collection  The BIR may avail of the remedy of collection when the assessment becomes final, executory and Demandable.  Any internal revenue tax which has been subject to assessment may be collected by distraint or levy or by a proceeding in court within 5 years : 1. If assessment within 3 years or ten year period – the counting of the 5 year period shall start from the issuance of FAN; 2. If assessed based on the period agreed upon between the taxpayer and the Commissioner - the collection shall be made within the period agreed upon in writing before the expiration of the 5 year period.  The period agreed upon may be extended by a subsequent written agreement made before the expiration of the period previously agreed upon.

Methods of Collection 1. Distraint of Personal Property –  it is the seizure by the government of taxpayer’s personal property , tangible or intangible to enforce the payment of taxes. a. Actual distraint  personal property are seized and physically taken into possession by the BIR and offered for sale at public auction. The property is sold to the highest bidder and the proceeds of the sale are applied to the payment of the tax due. The excess of the purchase price over the claim of the government shall be returned to the taxpayer. There is no right of redemption  when the amount of the bid for the property is not equal to the claim of the government, or is very much less than the actual market value of the property, the same may be purchased by the government for the amount of the claim. b. Garnishment – property owned by the taxpayer but in the possession of a third party, e.g. bank accounts. c. Constructive distraint  the taxpayer or person in possession or control of the taxpayer’s property, is required to sign a receipt covering the property distrained obligating himself to preserve and not to dispose of the same without the authority of the BIR. 

May be availed of in the following cases: 1. The taxpayer is retiring from any business subject to tax. 2. He intends to leave the Philippines 3. He removes the property therefrom 4. He performs any act tending to obstruct the proceeding for collecting the tax due or which may be due to him.

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Persons authorized to commence distraint proceedings a. If the amount is more than P 1,000,000 - Commissioner of Internal Revenue b. If the amount is P 1,000,000 or less - Revenue District Officer

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Power to lift order of distraint – The Commissioner or his duly authorized representative shall have the power to lift order or distraint.

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Right of Pre-emption /Release of distraint property upon payment prior to sale if any time prior to the consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be restored to the owner.

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Distinction between Actual and Constructive Distraint – Actual Distraint Constructive Distraint a) personal property is physically taken a) personal property is not physically taken b) the taxpayer is already delinquent in the b) there is no finding yet of discrepancy, only payment of his taxes. that the taxpayer is leaving the country or disposing of his property in favor of the creditor or is in the process of liquidation. c) personal property taken is sold in order to c) personal property is merely held as security satisfy the tax delinquency. to answer for any future tax delinquency.

2, Levy on Real Property – the seizure by the government of real properties and interest in or rights to such properties in order to enforce payment of taxes.  When to levy? After the expiration of the time required to pay the delinquent tax or delinquent revenue, real property may be levied upon before, simultaneously or after the distraint of personal property belonging to the delinquent.

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How shall levy be effected? Levy shall be effected by writing upon a duly authenticated certificate showing the name of the taxpayer and the amount of the tax and penalty due from his a description of the property upon which levy is made.

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To whom shall the levy be served? Written notice of the levy shall be mailed to or served upon the: a. Register of deeds of the province or city where the property is located and b. Upon the delinquent taxpayer, c. or if he is absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, d. or if there be none, to the occupant of the property in question.

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Redemption of the Property Sold - (levy of property) a) the property sold may be redeemed by the delinquent taxpayer within one year from the date of sale b) the owner shall not be deprived of the possession of the property sold and shall be entitled to the rents and other income thereof until the expiration of the time allowed for redemption. c.) if the taxpayer fails to redeem the property, a final deed of sale is executed infavor of the buyer.

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Further Distraint or Levy the remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due, including all expenses, is collected.

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Distinction among Warrant of Distraint, Warrant of Levy and Warrant of Garnishment: Distraint Levy Garnishment a) as to subject personal property owned personal property owned personal property owned Matter by and in possession of by and in possession of by the taxpayer but in the taxpayer. The taxpayer the possession of a third party.

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b) As to disposition for want of bidders or bids inadequate to satisfy tax deficiency.

purchased by the gov’t. then resold to meet deficiency.

forfeited for the gov’t. then sold to meet the deficiency.

purchased by the gov’t. then resold to ...