TaxSpecialista, How to Use Discord Properly? How To Reduce BIR Deficiency Taxes Lawfully

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THE Bureau of Internal Revenue (BIR) recently issued Revenue Memorandum Circular (RMC) 15-2020, requiring the provision of printed guidelines to taxpayers on responding to deficiency tax assessments, which shall be furnished during the discussion of the discrepancy of the tax assessment.

The guidelines on the assessment stages are as follows:

A. Discussion of Discrepancy – Findings discovered by the BIR during their audit shall be sent through a notice of discrepancy and shall be explained by the revenue officer in charge of the assessment by discussing the discrepancy.

Agreement to the audit findings shall mean payment of the deficiency taxes, including the applicable penalties and interest. Otherwise, a deficiency assessment notice from the national office or revenue region, as applicable, shall be issued.

B. Preliminary Assessment Notice (PAN)/Formal Letter of Demand and Final Assessment Notice (FLD/FAN) – The issued PAN shall contain the computation of the deficiency tax, as well as the facts on which the proposed deficiency is based. Failure to respond within 15 days from the receipt of the PAN shall merit the issuance of an FLD/FAN. An administrative protest can be raised within 30 days from the receipt of the FLD/FAN.

C. Administrative Protest – The protest on the FLD/FAN shall be addressed to the assistant commissioner, regional director or authorized higher revenue officer and shall be filed with the office of the concerned revenue official to properly record and evaluate the protest.

Protests shall be considered void without the following:

1. Date of assessment notice,

2. Nature of the protest, whether for reconsideration or for re-investigation, and

3. Applicable laws, rules and regulations on which the protest is based

Failure to file a valid protest against the FLD/FAN within the 30-day period shall render the deficiency tax assessment final, executory and demandable, with no recourse for request for reconsideration or re-investigation.

The assistant commissioner or regional director shall issue a final decision on disputed assessment (FDDA), which shall likewise state the basis of the assessment and that the decision is final. Request for reconsideration with the Office of the Commissioner (CIR) or judicial protest to the Court of Tax Appeals (CTA) shall be made within 30 days from receipt of the FDDA.

D. Judicial Protest – Appeals to the CTA shall be made within 30 days after the expiration of the 180-day period, which reckons from the date of filing the protest for reconsideration or from the date of submission of the required documents, for protest for re-investigation. Further, appeals shall also be made within 30 days from the receipt of the FDDA or 30 days from the receipt of the decision of the CIR. Failure to appeal to the CTA within the said period shall render the decision of the BIR as final, executory and demandable. This article, on the other hand, would like to remind taxpayers to protect their rights to due process during the tax audit of the Bureau of Internal Revenue (BIR), specifically when issued a Final Decision on Disputed Assessment (FDDA).

As part of its tax audit procedures, the BIR issues a Formal Letter of Demand and Final Assessment Notice (FLD/FAN), calling for the payment of the taxpayer’s deficiency taxes that have not been resolved at the Preliminary Assessment Notice (PAN) stage. Once the taxpayer files an administrative protest against the FLD/FAN, the BIR will then assess and evaluate the protest in order to come up with its decision.

The FDDA is the final decision of the Commissioner of Internal Revenue (CIR) or a duly authorized representative on the protest to the FAN. Pursuant to the law and regulations, the FDDA should state the facts, the applicable law, the rules and regulations, or the jurisprudence on which such decision is based. Otherwise, the decision shall be void for depriving the taxpayer of their right to due process. Without the facts and the law or regulations on which such a decision is based, the taxpayer cannot intelligently dispute the assessment.

Another instance that deprives taxpayers of their right to due process based on the decision of the Court is the inclusion of a new finding in the FDDA, which was not previously part of the taxes assessed in the PAN and FLD/FAN.

LEGAL CONSEQUENCE OF THE FDDA
In a 2020 Court of Tax Appeals decision (CTA EB No. 1831, Feb. 12, 2020), the CTA held that the tax deficiency assessed for the first time in the FDDA violated the taxpayer’s right to due process, as the latter was not given the chance to refute the finding within the administrative level. Hence, the assessment should be cancelled. The CTA cited Section 228 of the 1997 Tax Code, as amended, which provides that the taxpayer needs to be informed of the law and of the facts on which the assessment is made; otherwise, the assessment will be void.