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Handling BIR Assessment

Is your company embroiled in the middle of an assessment dispute with the tax
authorities? It wouldnt come as a surprise if a substantial number of corporate taxpayers
are currently battling tax disputes, either administratively or with the court. But if the
taxpayer is to emerge victorious or at least have a fighting chance of winning this battle,
the taxpayer must arm himself with the proper weapons to wage this crusade against the
baseless assessment.

Proper weapons, for tax-assessment purposes, involve having substantive ammunitions
to dispute the issues raised by the Bureau of Internal Revenue (BIR) and possessing the
knowledge of the rigmarole of defending an assessment. On a substantive point, each
taxpayer may have his own justifications for arriving at a particular tax position. For the
procedural part, however, the mechanics are set by existing laws, rules and regulation
and are thus, applicable to all taxpayers. It is therefore imperative that each and every
taxpayer be familiar with the procedures for handling assessments.

On an administrative level, the basic standard operating procedure is for the BIR to issue
a Letter of Authority to the taxpayer with the appointment of revenue officers who will
conduct the audit and examination. The taxpayer is requested to submit documents
which the revenue officers would need to conduct investigation. On the basis of the
documents submitted and returns filed, the BIR makes a determination if the taxpayer is
liable for deficiency taxes. If there is finding for deficiency taxes, a Notice of Informal
Conference shall be sent to the taxpayer, giving the latter an opportunity to present his
side.

If no agreement is reached, or if the taxpayer fails to attend the informal conference, a
Preliminary Assessment Notice (PAN), for which the taxpayer has 15 days to respond,
will be issued. Should the taxpayer fail to answer the allegations stated in the PAN or if
his explanations are not acceptable, a Formal Letter of Demand and Assessment Notice
shall be issued, which should not only contain the computation of deficiency taxes but
should also include the factual and legal bases of the assessment.

Upon receipt of the Formal Letter of Demand, the taxpayer may file an administrative
protest by requesting for a reconsideration or reinvestigation within 30 days from receipt
of the demand. In addition to the 30-day period for filing, in order for the protest to be
considered valid, it must state the facts, the applicable law, rules and regulations, or
jurisprudence on which the protest is based. Should the taxpayer have additional
documents to support his protest, he may submit the same within 60 days from the date
of filing of the protest letter. Based on the arguments presented by the taxpayer and
documents submitted, the BIR may accept or deny the protest.

On the judicial level, there are a number of instances where the taxpayer may bring his
concerns to the Court. In assessment cases, however, there are at least two instances
when the conflict between the BIR and the taxpayer may be elevated to court. First is
when the Commissioner or his duly authorized representative fails to act on the
taxpayer's protest within 180 days from submission of the required documents in support
of the protest. Second is when the BIR denies the protest filed by the taxpayer.

In the first instance, the taxpayer may appeal to the Court of Tax Appeals (CTA) within
30 days from the lapse of the 180-day period. In the second case, the appeal must be
filed within 30 days from receipt of the decision of the BIR.

How would the taxpayer know if the decision of the BIR is already considered as the final
decision appealable to the CTA? This issue was addressed by the court in a recent
ruling wherein a taxpayer upon receiving the decision of the Commissioners
representative denying the protest, filed a motion for reconsideration with the same
office within 30 days upon receipt of the decision. It was only after the taxpayer received
the response to his motion for reconsideration, way beyond the 30 day period to appeal,
that he filed a case in court.

The CTA, in ruling against the taxpayer, cited RR No. 12-99 which provides that if the
taxpayer elevates his protest to the Commissioner within 30 days from receipt of the final
decision of the Commissioners duly authorized representative, the latters decision shall
not be considered final, executory and demandable. However, if the taxpayer files a
motion for reconsideration with the same office, instead of the office of the
Commissioner, the running of the 30-day period to appeal the final decision on disputed
assessment with the CTA is not tolled. The taxpayer, in failing to file the appeal in court
within the 30-day period, loses his right to appeal in court.

The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law).
If you have any comments or questions concerning the article, you can e-mail the author
at kristine.casa-siervo@bdblaw.com.ph or call 403-2001 local 340.