CHAPTER 2

Tax Administration a system of collecting taxes in accordance with the countrys tax
policies, assessment and collection

DOF fiscal policies, general management of the governments financial resources

Powers and Duties of the Bureau of Internal Revenue
To assess and collect all national internal revenue taxes, fees and charges
To enforce all forfeitures, penalties and fines connected with the above
To execute judgments in all cases decided in its favor by the Court of Tax Appeals
To administer, supervise and effect police powers authorized by the NIRC

Powers of the BIR Commissioner
Power to interpret tax
Power to decide tax cases and disputed tax assessments (30 days to CTA, 15 days
to higher courts)
Power to obtain information
Makes assessments and prescribe additional tax requirements (examinations on
returns, reports, statements, and other documents or best evidence obtainable;
authority to conduct inventory and surveillance, prescribe real property values,
inquire into bank accounts, accredit and register tax agents, prescribe additional
procedural or documentary requirements)
Compromise, abate and refund or credit taxes
Suspend the business operations of a taxpayer
Delegate powers (to ranks equivalent to a division chief or higher)

Registration Requirements foreign currency deposit unit

BIR Forms
BIR Form 1901 self-employed, mixed income individuals, estates and trusts
BIR Form 1902 purely compensation income
BIR Form 1903 corporations and partnerships
BIR Form 1904 One time taxpayer
BIR Form 1905 updating/cancellation of registration
BIR Form 1906 for printing of receipts and invoices
BIR Form 605 payment of annual registration, upon receipt of a demand letter,
tax liability or penalty

Transfer of Ownership- No additional payment incase of transfer of ownership while
submitting of inventories of goods or stocks are needed within 30 days

Transfer of Business Place clearance from the RDO

Printing of Receipts. Sales of Commercial Invoice BIRs authority to print, be serially
numbered, contain the name, business style, TIN, and business address of the person or
entity to use such receipts or invoices, other information required

Issuance of Receipts, Sales or Commercial Invoice time of issuance should be the time
when transaction is effected, required to issue receipts or sales invoices when the value
of merchandise sold is 25 pesos or more (except for rentals, commissions,
compensations or fees, VAT to VAT sales

Tax Returns refers to a formal report prepared by the taxpayer or his agent in a
prescribed form showing an enumeration of taxable amounts and description of taxable
transactions, allowable deductions, amount of tax and tax payable to the government

BIR Form Nos. 1700 and 1701 Annual Income Tax Returns for Individuals
BIR Form No. 1702 Annual Income Tax Return for Corporations and Partnerships
BIR Form No. 1800 Donors Tax Return
BIR Form No. 1801 Estate Tax Return

Certificate of Payment should be kept in plain view

Tax Remedies procedures available both to the government to collect taxes and to the
taxpayer to avoid abuses in the payment of taxes

Assessment
Tax Assessment formal letter made by the BIR demanding the taxpayer to
settle his tax liability within the indicated period
Self-Assessment
Prospective Assessment Pre-Assessment Notice, 15 days from notice to explain
his side
Deficiency Assessment assessment made by a tax assessor showing the correct
amount of tax after tax audit
Jeopardy Assessment
Disputed Assessment questioned by the taxpayer as to its validity or legality
and asks the same to be cancelled
Final Assessment official assessment which was not disputed or appealed by
the taxpayer within the prescribed period and has become final and executor
Illegal or Void Assessment assessment without authority

Assessment Period
Simple Neglect within 3 years from the filing of ITR
Willful Neglect within 10 years from the discovery of fraud or omission or tax
collection within 10 years from the discovery of fraud or omission

Notice for Informal Conference (NIC) sent by the Revenue Officer to the taxpayer with
noted tax discrepancy, 15 days or else
Preliminary Assessment Notice 15 days or else it will warrant the issuance of Formal
Letter of Demand of Payment together with the assessment showing the computation
inclusive of the applicable penalties

Motion for Reconsideration
Motion for Reinvestigation
Motion for Withdrawal pressured to accept the agreement
Motion for Cancellation violation of due process of law

Collection of Taxes administrative or judicial remedies

Distraint of Personal Property seizure by the government of personal property, public
sale if taxes accruing thereto are not voluntarily paid, constructive and actual distraint

Levy of Real Property seizure by the government of immovable property in order to
enforce the payment of taxes

Injunction restraining order issued by the court having jurisdiction over the filed suit
intended to forbid the continuance of the action of law for purposes of due process, if
collection could jeopardize the interest of the government or the taxpayer subject to the
posting of the bond

Tax Lien a legal claim granted to the government to secure the proper payment of the
tax, surcharges, interest and costs on all property subject to levy or distraint, thru
seizure of the property and by a sale of the property

Forfeiture taking of property without compensation as a result of an offense
committed, not immediately destroyed for at least 20 days after seizure

Compromise parties by reciprocal concession avoid litigation or put an end to one
already commenced

Filing of Bonds where the computation of required actual tax payment is not readily
done and will cause delays, bond is issued

Informers Reward 10 %

Making Arrest, Search, and Seizure

Deportation in Case of Aliens

Inspection of Books internal revenue officer

Letter of Authority request to the taxpayer to permit the bearer thereof to conduct the
necessary examination of accounting records and books of accounts

Civil Action one that is brought to enforce, redress or protect private rights

Criminal Action is a penal prosecution, to punish an infraction of the criminal laws

Surcharge is a civil penalty imposed by law in addition to the main tax required to be
paid due to delinquency or misrepresentation of taxes

Simple Neglect 25 %

Willful Neglect 50 %

Interest 20 %

Installment Payments of Tax only 20 % if request is approved

Remedies Available to Taxpayer
Tax Avoidance
Amendment of Tax Returns
Demand for the Letter of Authority
Protesting an Assessment
Applying for No Audit Program
Entering into a Compromise
Filing of Claim for Tax Credit
Filing of Claim for Refund

CHAPTER 3

Income earnings derived from service rendered, from capital or both including gain
derived from sale or exchange of personal or real property classified as either ordinary
or capital asset

Capital the original investment or fund used in order to generate earnings

Taxable Income reportable in the annual tax return or could be collected with final
tax, pertinent items of gross income specified in the Tax Code less the deductions and
personal and additional exemptions
- There must be gain or profit
- The gain must be realized or received: could be constructively
received

Compensation Income gain derived from labor, such as salaries and commissions
Profession or Business Income derived from an exercise of profession, business, or
utilization of capital including profit or gain derived from sale or conversion of assets
Passive Income taxpayer merely waits for the amount to come in, final tax
Capital Gain derived from sale of assets not used in trade or business

Income Tax Return (ITR) formal statement of the taxpayers taxable income and
deductions, reported in the BIR prescribed form, to be filed and paid quarterly

Cash Method servicing businesses
Accrual Method trading and manufacturing businesses

Installment Method - if initial payment does not exceed 25 %

Deferred Payment Method if sales exceed 25 % but they may only be realized in the
subsequent years

Income from Long-Term Construction Contracts

Cash Basis (No inventory), Accrual Basis (With Inventory), Crop Basis