WAIVER OF STATUTE OF LIMITATION IN TAX

ASSESSMENT CASES

Tax Assessment

An assessment refers to the determination of amounts due from a person

obligated to make payments. In the context of national internal revenue
collection, it refers to the determination of the taxes due from a taxpayer
under the National Internal Revenue Code of 1997.1

Tax assessments by tax examiners are presumed correct and made in

good faith. Hence, taxpayer has the duty to prove otherwise. In the
absence of proof of any irregularities in the performance of duties, an
assessment duly made by a Bureau of Internal Revenue examiner and
approved by his superior officers will not be disturbed. All presumptions
are in favor of the correctness of tax assessments.2

The assessment process starts with the filing of tax return and payment of
tax by the taxpayer. The initial assessment evidenced by the tax return is
a self-assessment of the taxpayer. The tax is primarily computed and voluntarily
paid by the taxpayer without need of any demand from government. If tax
obligations are properly paid, the Bureau of Internal Revenue may dispense
with its own assessment. 

After filing a return, the Commissioner or his/her representative may allow

the examination of any taxpayer for assessment of proper tax liability.
The failure of a taxpayer to file his or her return will not hinder the
Commissioner from permitting the taxpayer's examination.

The Commissioner can examine records or other data relevant to his or

her inquiry in order to verify the correctness of any return, or to make a
return in case of noncompliance, as well as to determine and collect tax liability.

When the BIR makes the assessment, the taxpayer is allowed to dispute
that assessment before the BIR. If the BIR issues a decision that is
unfavorable to the taxpayer or if the BIR fails to act on a dispute brought by the
taxpayer, the BIR's decision or inaction may be brought on appeal to the
Court of Tax Appeals. The Court of Tax Appeals then acquires jurisdiction
over the case.

The BIR assesses taxes when it appears, after a return had been filed, that
the taxes paid were:

 Incorrect,
 False,
1
Commissioner of Internal Revenue v. Fitness by Design, Inc., G.R. No. 215957, November 9, 2016
2
CIR v. Traders Royal Bank, G.R. No. 167134, March 18, 2015

1
  Fraudulent; or
 When taxes are due but no return is filed.

Taxes are generally self-assessed. They are initially computed and

voluntarily paid by the taxpayer. If the tax payments are correct, the BIR
need not make an assessment.

Stages/Life of a Tax Assessment3

Issuance of Letter of Authority LOA is valid only for 30 days from
the date of issue.
(LOA) Quick Guide in Disputing BIR Tax Assessments
3
Taxpayers END Tax Notes

2
 BIR fieldwork/walkthrough should be
BIR Fieldwork/Walkthrough done within 120 days after the
(Tax Audit Investigation) issuance of LOA.

Notice of Informal Conference shall be

Notice of Informal Conference
issued to the taxpayer in order to afford
the taxpayer with an opportunity to
present his side. If the taxpayer is not
amenable to the findings, a PAN will be
issued after 30 days from receipt of the
Notice of Informal Conference.

Protest to the PAN and supporting

documents should be submitted
Issuance of Preliminary Assessment within15 days after receipt of the
Notice (PAN) same, otherwise, FAN will
automatically be issued.

Protest to the FAN should be submitted

Issuance of Final Assessment Notice
(FAN)
within 30 days after receipt of the
same. Supporting documents, on the
other hand, must be submitted within
60 days from the time of the filing of
the protest otherwise, the assessment
will become final and executory.

If the protest of the taxpayer is

Issuance of Final Decision on denied in partial or in full, the
Disputed Assessment (FDDA) Commissioner or his duly authorized
representative shall issue a FDDA to
the taxpayer.

In case the protest of the taxpayer is

Court Proceedings
A. Letter of Authority (LOA)
denied in partial or in full or the protest
is not acted upon by the BIR, the
taxpayer has the option to elevate the
case to the Court of Tax Appeals
Division, CTA En Banc, and finally to the
Supreme Court.

A LOA is the authority given to the appropriate revenue officer to examine

the books of account and other accounting records of the taxpayer in
order to determine the taxpayer’s correct internal revenue liabilities and
for the purpose of collecting the correct amount of tax. It commences the

3
audit process and informs the taxpayer that it is under audit for possible
deficiency tax assessment.4

Before a revenue officer can conduct an assessment, there must be a

grant of authority first. Such revenue officer so authorized must also not
go beyond the authority given. In the absence of such authority, the
assessment or examination is a nullity.5

As part of due process, the purpose of the LOA is not only to give the
subject taxpayer notice on the coverage of the tax investigation, but also
to prevent the examiner from claiming blanket authority to conduct the
audit and investigation.6

In the case of Medicard Philippines, Inc v. CIR, April 5, 2017, the Court
rules that a Letter of Notice (LN) is not a substitute for LOA to investigate.
An LN is not found in the NIRC and is only for the purpose of notifying the
taxpayer that a discrepancy is found based on the BIR’s Relief System.
Hence, the absence of LOA violated the Medicard’s right to due process.

Settlement and payment of deficiency tax under LN shall not preclude the
BIR from issuing a LOA covering the comprehensive audit of a taxpayer’s
tax liability. However, any payment of deficiency taxes shall be credited
against any assessment that may be made by the appropriate BIR Office
pursuant to a notice of investigation or LOA provided the discrepancies
disclosed by said audit are of the same nature as the discrepancies
reflected in the LN.

RELIEF System

“Pre-processed” RELIEF data refer to historical data on Summary List of

Purchases (SLP)/Summary List of Sales (SLS) that were matched with ITS
registration information.7

Under the RELIEF System, a revenue officer may begin an examination of

the taxpayer even prior to the issuance of LN or even in the absence of an
LOA with the aid of a computerized/manual matching of taxpayers’
documents/records. Accordingly, under the RELIEF System, the
presumption that the tax returns are in accordance with law and are
presumed correct since these are filed under the penalty of perjury are
easily rebutted and the taxpayer becomes instantly burdened to explain a
purported discrepancy.8
 

4
Commissioner of Internal Revenue v. De La Salle University, Inc., G.R. Nos. 196596, 198841 &
198941 November 9, 2016
5
Taxpayers Quick Guide in Disputing BIR Tax Assessments END Tax Notes
6
Dakay Construction and Development Corporation v. CIR, CTA Case EB No. 1294, September
20,2016
7
Revenue Memorandum Order (RMO) No. 06-17
8
Medicard Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 222743, April 15, 2017

4
The BIR’s RELIEF System usually compares the taxpayers’ Summary List
of Sales (SLS) and Summary List of Purchases (SLP) and base the
assessment, if any, on the discrepancies that were noted.

For example:

Company A bought goods from Company B for P100 (VAT exclusive)

On the part of Company A, it will record the above-mentioned sales in its

SLS. Company B, on the other hand, will record its purchases in its SLP.
Both SLS and SLP are submitted with the BIR either manually or
electronically on a quarterly basis. The RELIEF system will then compare if
there were no discrepancies between the recorded sales and purchases of
Company A and Company B. If the system reveals any discrepancy, an
assessment will be issued accordingly.

Usually the findings under RELIEF System will cover undeclared sales
and/or undeclared purchases. There are undeclared sales if the total
purchases of one party (the buyer) are greater than the amount declared
as sales by the other party (the seller). In this case, possible deficiency
income tax may arise based on the computed difference.

Authorized Personnel to Sign and Serve LOA/e-LOA

Investigating Officer Approving Officer

Revenue District Office (RDO) Regional Director
Large Taxpayer Service and its Assistant Commissioner (ACIR) -
Division LTS
Enforcement Service Deputy Commissioner Legal &
Inspection Group
Task Forces and Special Team CIR or any other authorized
Bureau officials.

Clearly, there must be a grant of authority before any revenue officer can
conduct an examination or assessment. In the absence of such an
authority, the assessment or examination is a nullity.

The e-LOA shall be served by any one of the Revenue Officers whose
name appears on the e-LOA. Hence, the taxpayer may refuse to accept
the e-LOA in case the person who is serving the same is not included
therein. Manually prepared LA shall be issued after the date of effectivity
of the 2010 Audit Program is not anymore valid.
Pursuant to Section C of RMO No. 43-90, an e-LOA can contain more than
one taxable year provided that the other years must be specifically and
expressly identified. It only prohibits the practice of issuing LOAs covering
audit of unverified prior years.

Prescribed Period in Serving the e-LOA:

5
A letter of authority must be served or presented to the taxpayer within
30 days from its date of issue, otherwise, it becomes null and void
unless revalidated and the taxpayer has all the right to refuse its service
beyond the 30-day period.9

B. BIR Fieldwork/Walkthrough (Tax Audit Investigation)

A revenue officer shall within 120 days from the date of the issuance of
LOA, conduct his audit and submit his investigation. If the final report is
not completed within the 120-day period, the revenue officer shall then
return the LOA for revalidation. The revalidation shall be limited to one
issuance only and is done by issuing a new LOA.10

In case the audit/examination exceeded the 120-day period, the LOA/e-

LOA will not be invalidated. In fact, in the case of AFP General Insurance
Corp. v. CIR, the court agreed with the observation made by the Court
in Division that there is nothing in RMO No. 38-88 and RMC No. 40-2006
that indicates that the LOA will be invalidated if not revalidated within the
120-day period.

However, the failure of the RO to complete the audit within the prescribed
period shall be subject to the applicable administrative sanctions.

In order to determine whether LOA is valid or not, the taxpayer should

check the following:

i. Determine if the period under audit/examination is specifically and

expressly indicated in the e-LOA.
ii. Check the authority of the signatory of the e-LOA.
iii. Check if the e-LOA is served to the taxpayer within 30 days from the
date of its issuance.
iv. Check if all the BIR officers who are currently conducting the
examination are duly indicated in the e-LOA.
v. Check if the PAN and/or FAN arose from an existing valid e-LOA and
not from existing LN.

If one of the above mentioned instances is not complied with, the e-LOA
issued to the taxpayer is invalid, hence, any tax assessment related
thereto is deemed null and void.
In case the taxpayer spots any of the above-mentioned instances, it is
appropriate to bring this issue in the reply to Preliminary Assessment
Notice (PAN), Final Assessment Notice (FAN), and/or with the Court of Tax
Appeals (CTA) in order to invalidate the e-LOA that was issued by the BIR.
Therefore, taxpayers should attack not only the legal issues but also
the procedural aspects of a tax assessment.

9
 Revenue Audit Memorandum Order (RAMO) No. 02-95
10
Sec. 3 of DOF Department Order No. 06-99

6
Note: The taxpayer may deny/refuse the receipt of LOA/e-LOA in case the
person who serves the same has no authority to do so or if the LOA/e-LOA
was served beyond the 30-day mandatory period.

As a general rule, taxpayers should be audited for 2 consecutive years onl
y.

However, if the taxpayer has been audited for the last two (2) years and
has been again selected for audit on the current or 3rd year,
the RDO/LTD/LTAD shall submit a written explanation to the
Commissioner, copy furnished the DCIR-OG for Regional cases, as to why
such taxpayer shall be subjected to audit for three (3) succeeding years,
unless the RDO/LTD/LTAD has established that such taxpayer has an
under declaration of sales/income or overstatement of
expenses/deductions by at least 30% (prima facie evidence of fraud).

Period of Limitation to Assess

The general rule is that the BIR is given three years to issue an
assessment against a taxpayer. However, Section 222 of the Tax Code of
1997, as amended, provides three instances where the prescriptive period
is extended to 10 years from discovery. These are: (1) if the return is
false; (2) if the return is fraudulent with the intent to evade taxes; and (3)
if no return is filed.
 
However, this 3-year prescriptive period to assess does not apply, among
others, to cases where the taxpayer issues a waiver in favor of the BIR. By
signing a waiver, the taxpayer agrees to extend to a future date the
period within which the BIR can issue a deficiency tax assessment.
Typically, when the 3-year period is about to expire, taxpayers agree to
issue a waiver in cases where they need more time to submit relevant
documents to the BIR and prevent the immediate issuance of an
assessment.

DATE OF FILING PRESCRIPTIVE PERIOD

Filed on due date 3 years from due date
Filed before due date 3 years from due date
Filed beyond due date 3 years from actual filing
False/Fraudulent filing (with intent 10 years from discovery of bad
to evade payment) faith/fraud
Non-filing 10 years from discovery of non-
filing
Waiver by the Taxpayer: Depends on the agreement of the parties
provided that the agreement to extend is executed prior to the original
period of assessment.

 Waiver of Prescriptive Period to Assess Tax

7
Waiver of Prescriptive Period to Assess Tax or “Waiver of Statute of
Limitations” is an agreement between the taxpayer and the BIR that the
period to issue an assessment and collect the taxes due is extended to a
date certain.

The waiver does not mean that the taxpayer relinquishes the right to
invoke prescription unequivocally particularly where the language of the
document is equivocal. 11

Pursuant to Section 223 of the Tax Code, internal revenue taxes may be
assessed or collected after the ordinary prescriptive period, if before its
expiration, both the Commissioner and the taxpayer have agreed in
writing to its assessment and/or collection after said period. The period so
agreed upon may be extended by subsequent written agreement made
before the expiration of the period previously agreed upon.
For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute
of limitations in the collection of taxes.

Thus, the law on prescription, being a remedial measure, should be

liberally construed in order to afford such protection. As a corollary, the
exceptions to the law on prescription should be strictly construed.

In the case of Republic v. Ablaza, the Court held that the law prescribing a
limitation of actions for the collection of the income tax is beneficial both
to the Government and to its citizens. Without such a legal defense,
taxpayer would furthermore be under obligation to always keep their
books and keep open for inspection subject to harassment by
unscrupulous tax agents.

The rule on prescription being a remedial measure should be interpreted

in a way conducive to bringing about the beneficient purpose of affording
protection to the taxpayer within the contemplation of the Commission
which recommend the approval of the law.

Importance of a Waiver

There is a need to execute a waiver of statute of limitation to give the

taxpayer more time in order for him/her/it to gather and submit pertinent
documents before an assessment is issued by the BIR.

However, it should be noted that by executing the same, it will prolong

the tax audit and the interest penalty related to the tax exposure will
continue to run, in case the tax assessment is found to be valid.

Requisites of a Valid Waiver

(CIR vs. Phil Daily Inquirer, G.R. No. 213943, March 22, 2017)

11
Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G.R. No. 162852, December
16,2004

8
 a) The waiver must be in the prescribed form. The phrase "but not
after ________ 19___," which indicates the expiry date of the period
agreed upon to assess/collect the tax after the regular three-year
period of prescription, should be filled up.

b) The waiver must be signed by the taxpayer himself or his duly

authorized representative. In the case of a corporation, the waiver
must be signed by any of its responsible officials. In case the
authority is delegated by the taxpayer to a representative, such
delegation should be in writing and duly notarized.

c) The waiver should be duly notarized.

d) The CIR or the revenue official authorized by him must sign the
waiver indicating that the BIR has accepted and agreed to the
waiver. The date of such acceptance by the BIR should be indicated.
However, before signing the waiver, the CIR or the revenue official
authorized by him must make sure that the waiver is in the
prescribed form, duly notarized, and executed by the taxpayer or
his duly authorized representative.

e) Both the date of execution by the taxpayer and date of acceptance

by the Bureau should be before the expiration of the period of
prescription or before the lapse of the period agreed upon in case a
subsequent agreement is executed.

f) The waiver must be executed in three copies, the original copy to be

attached to the docket of the case, the second copy for the taxpayer
and the third copy for the Office accepting the waiver. The fact of
receipt by the taxpayer of his/her file copy must be indicated in the
original copy to show that the taxpayer was notified of the
acceptance of the BIR and the perfection of the agreement.

New Rule on Waiver

Revenue Memorandum Order (RMO) No. 14-2016 dated April 4, 2016

repealed the very strict requirements for a valid waiver prescribed in RMO
No. 20-1990, Revenue Delegated Authority Order (RDAO) No. 05-2001,
and Revenue Memorandum Circular (RMC) No. 06-2005, which prescribe
the revised guidelines on the execution of waivers by taxpayers.

There are significant changes that effectively relax the requirements for a
valid waiver, presumably in response to a number of decisions by the
Court of Tax Appeals and the Supreme Court which invalidated waivers
issued by taxpayers for failure to faithfully comply with the requirements
under RMO 20-90, RDAO 05-01 and RMC 06-05.

The salient features of RMO No. 14-2016 include the following:

9
  The waiver may not necessarily be in the form prescribed by RMO
20-90 or RDAO 05-01 provided that the following conditions are
complied with;
 The waiver is executed before the expiration of the period to assess
or to collect taxes;
 The waiver is signed by the taxpayer himself, his duly authorized
representative, or by any of the responsible officials for
corporations; and,
 The expiry date of the period agreed upon to assess/collect the tax
is indicated.
 The waiver need not specify the taxes to be assessed nor the
amount thereof except in cases of waiver for collection of taxes.
 The taxpayer has the burden to ensure that the waiver is validly
executed by its authorized representative. The waiver cannot
thereafter be invalidated on the ground that the taxpayer’s
representative who participated in the conduct of the audit is not
authorized to sign the waiver.
 Notarization of the waiver is now optional.
 The waiver can be accepted by the Commissioner’s authorized
representative as prescribed in existing regulations, the revenue
district officer, or the group supervisor designated in the Letter of
Authority for the audit.
 To be valid, there are only two dates that need to be present on the
waiver, namely (1) the date of execution, and (2) the expiry date of
the period the taxpayer waives the statute of limitations.

However, the above-enumerated amendments on waiver requirements

under RMO 14-2016 are the subject to court decision.

In the recent case of Commissioner of Internal Revenue vs. Next Mobile,

Inc. (G.R. No. 212825 promulgated on December 7, 2015), the Supreme
Court held that a taxpayer who is in bad faith cannot impugn the validity
of the waiver.

While the Supreme Court reiterated that a waiver must strictly comply
with the requirements prescribed by the regulations, it qualified and held
that a taxpayer cannot impugn the validity of the waiver on the basis of
the defects he himself has caused after benefiting from it, as he will be
deemed estopped by his bad faith. Despite the waiver’s non-compliance
with the requirements in the regulations, the Supreme Court ruled in favor
of the BIR and treated the waiver as valid and binding upon the taxpayer
since the defect was attributable to the latter’s deliberate acts.

With the issuance of RMO 14-2016 and the pronouncement of the

Supreme Court in the Next Mobile case, it appears that tax assessments
can no longer be won simply based on technicalities by attacking the
validity of waivers.12
12
http://www.sgv.ph/revised-bir-rules-on-the-waiver-by-jonald-r-vergara-may-30-2016/

10
Waiver is a Bilateral Agreement

The Court ruled in the case of Philippine Journalists, Inc. v. Commissioner of

Internal Revenue that the waiver is not a unilateral act by the taxpayer or
the BIR, but is a bilateral agreement between two parties to extend the
period to a date certain.

The taxpayer must be furnished with a copy of the waiver because even if
knowingly executed, it is not considered a unilateral act of the taxpayer but is in
fact and in law an agreement between the taxpayer and the BIR.

When the taxpayer’s comptroller signed a waiver, it is not yet complete

and final until the BIR assented to it. There is compliance with the
provision of RMO No. 20-90 only after the taxpayer received a copy of the
waiver accepted by the BIR. The requirement to furnish the taxpayer with
a copy of the waiver is not only to give notice of the existence of the
document but of the acceptance by the BIR and the perfection of the
agreement.

Authorized Representative/s to Sign the Waiver in behalf of the Taxpayer

Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates that
all corporate powers are exercised, all business conducted, and all properties
controlled by the board of directors. A corporation has a separate and distinct
personality from its directors and officers and can only exercise its corporate
powers through the board of the directors.

Thus, it is clear that an individual corporate officer cannot solely exercise

any corporate power pertaining to the corporation without authority from
the board of directors.13

From the foregoing, it can be deduced that an authorized representative is a person

designated by the board of directors to sign in its behalf by virtue of a board
resolution constituting him/her as such.

Incontestability of Waiver executed by an Authorized Representative

As enunciated in Revenue Memorandum Order (RMO) No. 14-16, the

taxpayer is now charged with the burden of ensuring that the waivers
of statute of limitation are validly executed by its authorized
representative. The authority of the taxpayer's representative who
participated in the conduct of audit or investigation shall not be thereafter
contested to invalidate the waiver.

13
Cebu Metro Pharmacy, Inc. v. Euro-Med Laboratories, Philippines, Inc., G.R. No. 164757,
October18, 2010 citing the cases of Cagayan Valley Drug Corporation v. Commissioner of Internal
Revenue, G.R. No. 151413, February 13, 2008, Skyway Traffic Management and Security Division
Workers Organization v. PNCC Skyway Corporation, G.R. No. 171231, February 17, 2010 and Mid-
Pasig Land Development Corporation v. Tablante, G.R. No. 162924, February 4, 2010

11
It should be noted that before the passage of RMO 14-16, taxpayers can
contest the validity of the waiver by alleging that the person who signed
the same is not empowered by a board resolution and therefore, does not
fall within the purview of an authorized representative.

Since this became a rampant practice by taxpayers, the BIR was urged to
revise the procedures provided for the proper execution of such waivers.

Hence, it issued RMO14-16 in order to amend the rules as provided under

RMO No. 20-90 or Revenue Delegation Authority Orders (RDAO) No. 05-01.

Therefore, starting April 18, 2016, authority of the taxpayer's

representative who participated in the conduct of audit or investigation
shall no longer be contested in order to invalidate the waiver executed by
such representative.
Principle of Estoppel in the execution of Waivers

The doctrine of estoppel is predicated on, and has its origin in, equity
which, broadly defined, is justice according to natural law and right. As such, the
doctrine of estoppel cannot give validity to an act that is prohibited by law or one
that is against public policy. It should be resorted to solely as a means of preventing
injustice and should not be permitted to defeat the administration of the
law, or to accomplish a wrong or secure an undue advantage, or to extend beyond
them requirements of the transactions in which they originate. Simply put,
the doctrine of estoppel must be sparingly applied.14

 In Collector of Internal Revenue v. Suyoc Consolidated Mining Company, the

doctrine of estoppel prevented the taxpayer from raising the defense of
prescription against the efforts of the government to collect the assessed
tax.

Under RMO No. 20-90 Under RMO 14-2016

and RDAO 05-01
FORM As prescribed by RDAO May or may not be in the
No. 15-01 (mandatory) form prescribed under
RMO 20-90 or RDAO 05-01
Notarized Notarization is optional
Signed by taxpayer or his duly-authorized
Person representative. For the corporations, it must be signed
authorized to by any of its responsible officials Note: Authority of
sign for representative cannot be contested to invalidate the
taxpayer waiver under new rules.
The CIR or authorized The CIR or officials

14
Commissioner of Internal Revenue v. Kudos Metal Corp, GR No. 178087, May 5, 2010 citing
LaNaval Drug Corporation v. Court of Appeals, G.R. No. 103200, August 31, 1994, Ouano v. Court
of Appeals, 446 Phil. 690, 708 (2003), and C & S Fishfarm Corporation v. Court of Appeals, 442 Phil.
279,290 (2002

12
BIR Officers revenue official indicating previously designated in
authorized to date of acceptance. existing issuances or
accept concerned RDO or group
of supervisors designated
in the LOA/MOA.
Time of Date of execution and acceptance must be before
Execution by expiration of the prescriptive period or lapse of the
the taxpayer period previously agreed upon.
and
Acceptance by
the BIR
Execution by the Execution
Material dates taxpayer; Expiry date of the period
Notarization; the taxpayer waives the
Acceptance by BIR statute of limitations
Expiry date of the period
the taxpayer waives the
statute of limitations
The waiver must be Number of copies not
Number of executed in three (3) indicated.
copies and copies, the original copy
receipt of a to be attached to the The taxpayer shall have
copy by the docket of the case, the the duty to retain a copy
Taxpayer second copy for the of the accepted waiver.15
taxpayer and the third
copy for the Office
accepting the waiver.

The fact of receipt by the

taxpayer of his/her file
copy shall be indicated in
the original copy.

Effect if Waiver is Signed and Accepted by Unauthorized BIR Official

The waiver is considered as null and void. In the case of Commissioner of

Internal Revenue v. Court of Appeals, G.R. No. 115712, dated February 25,
1999, the Supreme Court affirmed the ruling of the CTA in declaring the
waivers executed by Carnation was invalid and without any binding effect
for the reason that the same was not signed by the BIR Commissioner or
any of his authorized agents. Furthermore, the Supreme Court also denied
the contention of the petitioner in contending that the BIR gave its implied
consent to such waivers and the same is considered as a unilateral
contract.

15
http://picpa.com.ph/attachment/224201793958837.pdf

13
Proper Time to Invoke/Raise the Invalidity of the Waiver

In the case of CIR v. Transitions Optical Philippines, Inc., the court held
that the invalidity of the waivers should be invoked at the earliest
opportunity, either in its:

 Protest to the PAN,

 Protest to the FAN, or
 Supplemental Protest to the FAN.

Application of Principle of Estoppel in the Execution of Waivers

The doctrine of estoppel is predicated on, and has its origin in, equity
which, broadly defined, is justice according to natural law and right. As
such, the doctrine of estoppel cannot give validity to an act that is
prohibited by law or one that is against public policy. It should be resorted
to solely as a means of preventing injustice and should not be permitted
to defeat the administration of the law, or to accomplish a wrong or
secure an undue advantage, or to extend beyond the requirements of the
transactions in which they originate. Simply put, the doctrine of estoppel
must be sparingly applied.

The assessment process has three main stages:

1. The informal conference,

2. The preliminary assessment, and
3. The final assessment.

C. Notice of Informal Conference

Notice of Informal Conference is considered as a period wherein the

Revenue Officer, who audited the taxpayer’s records, shall present to the
taxpayer his/her findings.

The taxpayer, on the other hand, will determine whether or not he

is amenable with such findings.

Process of Notice for Informal Conference

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 of Revenue

14
 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.16
 
Duration

The Informal Conference shall in no case extend beyond thirty (30)

days from receipt of the notice for informal conference.17
 
Procedure in case the taxpayer is not amenable to the assessment

If 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 seven (7) days 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 regulations18

D. Preliminary Assessment Notice (PAN)

The PAN is a communication issued by the Regional Assessment Division,

or any other concerned BIR Office, informing a Taxpayer who has been
audited of the findings of the Revenue Officer, following the review
of these findings.

If after review and evaluation by the Commissioner or his duly authorized

representative, as the case may be, 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.19

The taxpayer should not be wary in case he received a PAN from the BIR.
The taxpayer should instead prepare a protest letter contesting the BIR’s
findings and submit all relevant documents in order to support his
contention.

Contents:

16
Sec. 2 of Revenue Regulations (RR) No. 07-18
17
Ibid.
18
Ibid.
19
Sec. 3.1.1 of Revenue Regulations (RR) No. 12-99, as amended

15
 It shall show in detail the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is based. This is
consonant with the provision of the Tax Code which states that the
taxpayer shall be informed in writing of the law and the facts on
which the assessment is made.20

Section 228 of the Tax Code clearly requires that the taxpayer must first
be informed that he is liable for deficiency taxes through the sending of a
PAN (Preliminary Assessment Notice). He must be informed of the facts
and the law upon which the assessment is made. The law imposes a
substantive, not merely a formal, requirement. To proceed heedlessly with
tax collection without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative investigations – that
taxpayers should be able to present their case and adduce supporting
evidence.21

The absence of a PAN is fatal to the validity of an assessment. It is clear

that the sending of a PAN to taxpayer to inform him of the assessment
made is but part of the due process requirement in the issuance of a
deficiency tax assessment, the absence of which renders nugatory any
assessment made by the tax authorities.22
Instances where PAN is Not Required (Section 228, NIRC)

a) When the finding for any deficiency tax is the result of mathematical
error in the computation of the tax as appearing on the face of the
return; or

b) When a discrepancy has been determined between the tax withheld

and the amount actually remitted by the withholding agent; or

c) 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

d) When the excise tax due on excisable articles has not been paid; or

e) When an article locally purchased or imported by an exempt person,

such as, not limited to, vehicles, capital equipment, machineries and
spare parts, has been sold, traded or transferred to non-exempt
persons.

20
Sec. 228 of the National Internal Revenue Code (NIRC), as amended
21
Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December
8,2010
22
Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December
8,2010

16
In the above-cited cases, a Formal Letter of Demand (FLD)/Final
Assessment Notice (FAN) shall be issued outright.

Persons Authorized to Sign and Issue the PAN

a. Commissioner of Internal Revenue (CIR);

b. Revenue Regional Directors;
c. Assistant Commissioner-Large Taxpayers Service; or
d. Assistant Commissioner-Enforcement and Advocacy Service. 23

In case the person who signs the PAN has no authority to sign the same,
the assessment or examination is a nullity.

Taxpayer shall submit/file their responses to the PAN with the duly
authorized representative of the Commissioner who signed the PAN.

Prior to the issuance of PAN, the taxpayer may be allowed to make

voluntary payments of probable deficiency taxes and penalties.

Service of PAN

The notice (PAN/FLD/FAN/FDDA) shall first be served to the taxpayer’s

registered address before the same may be served to the taxpayer’s
known address, or in the alternative, may be served to the taxpayer’s
registered address and known address simultaneously.24

Authorized Person to Receive the PAN

The taxpayer of his duly authorized representatives has the authority to

receive the PAN.

Effect of Failure to Respond to the PAN

 If the taxpayer fails to respond within fifteen (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.

 If the taxpayer, within fifteen (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 fifteen (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.25

23
Revenue Memorandum Circular (RMC) No. 11-14
24
Commission of Internal Revenue v. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010
25
Sec.3.1.1 of Revenue Regulations (RR) No. 12-99, as amended

17
Thus, it can be deduced that a FAN will still be issued whether or not the
taxpayer protest the findings of the BIR. In fact, the BIR has issued an
order which states that the protest against Preliminary Assessment Notice
(PAN) is optional/not mandatory. But it will benefit the taxpayer if he opts
to respond to the PAN so that the amount that will be reflected per FAN
will be at reduced amounts and will only reflect contested issues.

The taxpayer may opt to pay the deficiency tax reflected per PAN if he
agrees with the findings of the BIR. In this case, a FLD/FAN shall be issued
to formalize the assessment, and Payment Form 0605 shall be duly
prepared, filed and paid to acknowledge and provide evidence for the
settlement of the assessment or portion of the assessment paid. However,
the taxpayer should ensure to get an Authority to Cancel Assessment
(ATCA) from the BIR to evidence the cancellation of the assessment.

Denial of the Response to PAN

The issuance of a Formal Letter of Demand (FLD)/ and Final Assessment

Notice (FAN) reiterating the immediate payment of deficiency taxes and
penalties previously made in the PAN is a denial of the response to the
PAN.26

E. Final Assessment Notice (FAN)

The Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall
be issued by the Commissioner or his duly authorized representative to
the taxpayer after 15 days following the receipt of the PAN.

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.
The requirement of providing the taxpayer with written notice of the
factual and legal bases applies both to the FLD/FAN and the FDDA.

Issuance of FAN/FLD before the Issuance of the PAN

In the case of Dionisia D. Pacquiao v. Milabao, it can be inferred that the

BIR had no intention of giving the taxpayer to be heard on her arguments
against the PAN, if any. Clearly, respondent failed to observe due process
when BIR issued the FLD/FAN even before petitioner supposedly receive
the PAN. It is worthy to note that the FLD/FAN was issued 2 days before
the issuance of PAN.

In this case, the CTA upheld the supremacy of the taxpayer’s

constitutional right to due process and declared the assessment void and
nugatory.

Issuance of FAN prior to the Lapse of the 15-day Period to Respond to PAN
26
Revenue Memorandum Circular (RMC) No. 11-14

18
The assessment is still void. It is well settled that the right of the taxpayer
to respond to the PAN is an important part of the due process requirement
in the issuance of a deficiency tax assessment. 27 Hence, the BIR should
respect the 15-day period to respond to the PAN before it issues the FAN.

FAN Received after the 3-year Prescription Period

The assessment is void because it was served beyond the supposed

extended period.

In the case of Commissioner of Internal Revenue v. Transitions Optical

Philippines, Inc., the Supreme Court held that the First Division of the
Court of Tax Appeals found that "the date indicated in the envelope/mail
matter containing the FAN and the FLD is December 4, 2008, which
is considered as the date of their mailing.”

Since the validity period of the second Waiver is only until November 30,
2008, prescription had already set in at the time the FAN and the FLD
were actually mailed on December 4, 2008.

For lack of adequate supporting evidence, the Court of Tax Appeals

rejected petitioner's claim that the FAN and the FLD were already
delivered to the post office for mailing on November 28, 2008 but were
actually processed by the post office on December 2, 2008, since
December 1, 2008 was declared a Special Holiday.

The testimony of petitioner's witness, Dario A. Consignado, Jr., that

he brought the mail matter containing the FAN and the FLD to the post
office on November 28, 2008 was considered self-serving, uncorroborated
by any other evidence.

Additionally, the Certification presented by petitioner certifying that the

FAN issued to respondent was delivered to its Administrative Division for
mailing on November 28, 2008 was found insufficient to prove that the
actual date of mailing was November 28, 2008. The Supreme Court finds
no clear and convincing reason to overturn these factual findings of the
Court of Tax Appeals.

Persons Authorized to Sign the FAN

The following persons have the authority to sign and issue FAN:

a) Commissioner of the Internal Revenue (CIR);

b) Revenue Regional Directors;
c) Assistant Commissioner-Large Taxpayers Service; or
d) Assistant Commissioner-Enforcement and Advocacy Service.

27
CIR v. Hermano (San) Miguel Febres Cordero Medical Education Foundation, Inc., CTA EB
No.1151, February 17, 2015

19
Similar to the rules on e-LOA and PAN, in the absence of such an
authority, the assessment or examination is a nullity.

If the taxpayer denies having received an assessment from the BIR, it

then becomes incumbent upon the latter to prove by competent evidence
that such notice was indeed received by the addressee. Here, the onus
probandi has shifted to the BIR to show by contrary evidence that the
taxpayer indeed received the assessment in the due course of mail. It has
been settled that while a mailed letter is deemed received by the
addressee in the course of mail, this is merely a disputable presumption
subject to controversion, the direct denial of which shifts the burden to
the sender to prove that the mailed letter was, in fact, received by the
addressee.

The BIR’s failure to prove the taxpayer’s receipt of the assessment leads
to no other conclusion but that no assessment was issued.

Remedy of Taxpayer if He/She Receives FAN

The taxpayer or its authorized representative or tax agent may protest

administratively against the aforesaid FLD/FAN within thirty (30) days
from date of receipt thereof. It need not be in the form of a pleading and
may be a letter for reinvestigation, re-computation or motion for
reconsideration. If the taxpayer files beyond the 30-day period, it is
automatically denied. If the last day of filing falls on a Saturday, the next
business day shall be considered as the last day.

Two Kinds of Protest

1. Complete – the protest include all necessary documents.

2. Incomplete – the documents may be completed within a period of
time as may be required by the BIR which period shall not exceed
60 days.

Also, if the taxpayer agrees with the issues that were raised by the BIR in
the FAN, he has the option to pay the noted deficiency taxes and the
penalties related thereto.

Failure to Respond to FAN within 30 Days

If the taxpayer fails to file a valid protest against the FLD/FAN within thirty
(30) days from date of receipt thereof, the assessment shall become final,
executory and demandable. No request for reconsideration or
reinvestigation shall be granted on tax assessments that have already
become final, executory and demandable.

20
FLD/FAN issued beyond the fifteen (15) days from the filing/submission of
the taxpayer’s response to the PAN shall be valid, provided that, it is
issued within the period of limitation to assess internal revenue taxes. 

The non-observance of the fifteen (15)-day period, however, shall

constitute an administrative infraction and the revenue officers who
caused the delay shall be subject to administrative sanctions as provided
for by law and pertinent revenue issuances.

Contents of Protest to FAN

Taxpayer shall state in his protest the following details:

 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;

 Date of the assessment notice; and

 The applicable law, rules and regulations, or jurisprudence on which

his protest is based.

Failure to state the foregoing in its protest letter will render it void and
without force and effect.

Request for Reconsideration Request for Reinvestigation

As to Definition:
Refers to a plea of re-evaluation of Refers to a plea or re-evaluation of
an assessment on the basis of an assessment on the basis or
existing records without need of newly discovered or additional
additional evidence. It may involve evidence that a taxpayer intends to
both a question of fact or of law or present in the reinvestigation. It
both. may also involve a question of fact
or of law or both.

As to the suspension of the 3-year prescription period:

Shall not suspend the prescriptive Shall suspend the prescriptive
period to collect. period to collect.

As to Evidence:
Limited to the evidence already at Entails the reception and evaluation
hand. Hence, submission of of additional evidence. Failure to
additional documents is not submit supporting documents
required. within 60 days from the filing of the
protest letter will make the
assessment final and executory.

As to the approval of the Commissioner:

21
Can be availed so long as the BIR Commissioner must first grant
request is duly indicated in the the request for reinvestigation.
protest letter.

It is advisable to protest under reconsideration if the issue/s involved are

purely legal and industry specific, hence, cannot be solved by mere
submission of supporting documents.

As you know there are many grey areas in tax which are currently
unresolved as of this date. For these instances, it is proper leaving those
matters to the Court.

Also, one of the advantages of this request is that it will not stop the
running of the 3-year prescriptive period to assess.

The rationale of the suspension is that are investigation, which entails the
reception and evaluation of additional evidence, will take more time than
a reconsideration of a tax assessment, which will be limited to the
evidence already at hand; this justifies why the former can suspend the
running of the statute of limitations on collection of the assessed tax,
while the latter cannot.28

Procedure in Availing Request for Reconsideration

1. Indicate the taxpayer’s intention to avail the same in the protest

letter. Also, it is required on the part of the taxpayer to indicate in
the date of the assessment, facts, law, rules and regulations, or
jurisprudence on which his protest is based.

2. File the protest letter with the BIR within thirty (30) days from the
receipt of the FAN.

3. In case the protest is denied, in whole or in part, by the

Commissioner’s duly authorized representative, the taxpayer may
either:

i. Appeal to CTA within 30 days from the date of receipt of the

said decision; or
ii. Elevate his protest through request for reconsideration to the
Commissioner within thirty (30) days from the date of receipt
of the said decision.
OR

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

authorized representative within one hundred eighty (180) days

28
Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No. 139736, October
17,2005

22
 counted from the date of filing of the protest in case of a request for
reconsideration, the taxpayer may either:

i. Appeal to the CTA within thirty (30) days after the expiration
of the one hundred eighty (180)-day period; or
ii. Await the final decision of the Commissioner’s duly authorized
representative on the disputed assessment.

However, the taxpayer should bear in mind that the above-

mentioned options are mutually exclusive and resort to one bars the
application of the other.

From the foregoing, it can be deduced that the assessment may be

appealed further to the Commissioner of Internal Revenue (CIR) in
case there is a partial or whole denial of the assessment made by
the Commissioner’s duly authorized representative.

Note: The taxpayer is given an opportunity under the law to elevate

the case with the Commissioner. Hence, the taxpayer should study
the cost and benefit of appealing the contested assessment with the
CIR versus the amount that will be incurred in case the same is
elevated to the judicial level. Thereafter, the taxpayer should
choose the option that is more favourable to him.

4. In case the protest is elevated to the Commission:

If the protest or administrative appeal, as the case may be, is

denied, in whole or in part, by the Commissioner, the taxpayer may:
i. Appeal to the CTA within thirty (30) days from date of receipt
of the said decision; or
ii. File a motion for reconsideration to the Commissioner.
However, the filing of the motion shall not toll the 30-day
period to appeal to the CTA.

OR

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:

I. Appeal to the CTA within 30 days from after the expiration of

the 180-day period; or
II. 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.

However, the taxpayer should bear in mind that the above-

mentioned options are mutually exclusive and resort to ne bars the
application of the other.

23
Note: FDDA is not equivalent to a FAN to have the effect of superseding
the latter. An FDDA is a decision of the Commissioner of Internal Revenue
on a disputed assessment and clearly differs from the assessment itself.

All decisions on protest to the FAN, whether the taxpayer’s protest is

accepted or denied partially or wholly, shall be communicated to the
taxpayer through the issuance of an FDDA.

However, the requirement for the Commissioner to rule on disputed

assessments before bringing an action for collection is applicable only in
cases where the assessment was actually disputed, adducing reasons
in support thereto.

Procedures in Availing Request for Reinvestigation

24