It is no secret that taxes are the government’s lifeblood, and without taxes, no government or civilized society can exist. It is, thus, everyone’s duty to pay their taxes. Justice Cruz’s words are still true to this date as he eloquently explained, “taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.” (CIR vs. Algue, Inc., G.R. No. L-28896, February 17, 1988)

While it is true that our taxing authorities are given abundant taxing power, the exercise thereof must always be done with caution. Otherwise, the innocent taxpayers are left vulnerable and may be prone to abuse by the taxing authorities, who are overly zealous in enforcing their mandate of collecting taxes through a tax audit and the issuance of deficiency tax assessments.

On this part of my update, I will try to explain what happens when you received the assessment notices and the available remedies.

PRELIMINARY ASSESSMENT NOTICE (PAN)

PAN contains issues yet to be resolved after DOD, or after the lapse of 30 days from receipt of NOD.

The taxpayer is given 15 days upon receipt of the PAN to file his Reply to the PAN. The Reply to PAN should address the remaining issues not resolved in the NOD and DOD. Sufficient, credible and reliable documents should accompany the Reply to support the taxpayers assertions. Otherwise, even if the Reply addresses the issues in the PAN but lacks sufficient documents and records to support the position, the BIR will probably retain the issues as it is unsupported by adequate, credible, and reliable evidence.

Suppose there are unresolved issues in the PAN even after the taxpayer filed its Reply. In that case, the examiner will then issue a Formal Assessment Notice/Formal Letter of Demand (FAN/FLD) to the taxpayer.

Final Assessment Notice/Formal Letter of Demand (FAN/FLD)

The FAN/FLD is BIR’s notice calling for payment of the taxpayer’s deficiency tax or taxes, stating the facts, the laws, rules, and regulations, or jurisprudence on which the assessment is based. (Rev. Regs. 18-2013). Considering the foregoing definition, we  can infer that to have a valid FAN/FLD, the following elements must concur:

1. Computation of the assessed deficiency tax liabilities;

2. There is a demand for payment of the assessed deficiency tax, and a deadline for the payment; and

3. Statement of the legal and factual basis of the deficiency tax assessment.

Protesting the FAN/FLD

The taxpayer or his authorized representative may file his protest to FAN/FLD within 30 days from the date of receipt thereof. The protest to FAN/FLD may be through a written request for reconsideration or reinvestigation (collectively as “protest” or “protest to FAN/FLD“). Although the two requests are similar they have subtle differences, as follows:

Note that the biggest difference between the two is that a request for reinvestigation allows the taxpayer to submit additional supporting documents within 60 days from the date of filing the protest to FAN/FLD. On the other hand, in a request for reconsideration, said right does not exist.

I would also like to point out that the review and the decision process for a request for reinvestigation and a request for reconsideration are entirely different. In a request for reinvestigation, the decision process will consider all the documents submitted during the PAN, FAN and the documents submitted during the sixty-day period of submission. In a request for reconsideration, the review will be limited to the documents already submitted, i.e., documents submitted during the PAN and FAN only.

Final Decision on a Disputed Assessment (FDDA)

If the taxpayer fails to file a valid protest to FAN/FLD within the thirty (30) day period or his protest to FAN/FLD is denied in whole or in part by the Commissioner or his duly authorized representative, an FDDA shall be issued demanding payment of the deficiency tax assessment. The FDDA should contain the following:

1. Facts, the applicable law, rules and regulations, or jurisprudence on which the decision is based;

2. That the same is the Commissioner’s FINAL DECISION.

An appeal of the FDDA is a tricky matter. The mode of appeal to be taken will depend on the signatory of the FDDA and whether it was acted upon or not.

Administrative Appeal to the Commissioner or his authorized representative

Denial of the Request for Reconsideration or Request for Reinvestigation

If the protest to the FAN/FLD is denied in whole or in part, the taxpayer’s remedies will depend on: (1) who denied the protest to FAN/FLD; and (2) whether the protest to FAN/FLD was acted upon or not.

If the Commissioner’s Authorized Representatives made the denial or inaction:

If the protest to the FAN/FLD is denied in whole or in part, by the Commissioner’s duly authorized representative the taxpayer has two (2) options, he may either:

1. Appeal to the Court of Tax Appeals (CTA) within thirty (30) days from the date of receipt of the decision; or

2. File an administrative appeal through a request for reconsideration to the Commissioner within thirty (30) days from the receipt of the decision.

If protest to the FAN/FLD is not acted upon by the Commissioner or his duly authorized representative within one hundred eighty days (180) from the date of filing the request for reconsideration or the lapse of sixty (60) days to submit additional documents if request for reinvestigation the tax payer may either:

1. Appeal to the CTA within thirty (30) days after the lapse of 180-day period; or

2. Await the final decision of the Commissioner’s duly authorized representative.

In either case, if the protest or administrative appeal is denied by the Commissioner, in whole or in part, may appeal to the CTA within thirty (30) days from the date of receipt of the said decision.

Otherwise, the assessment shall become final, executory and demandable.

If the Commissioner, himself, made the denial or inaction:

If the protest to FAN/FLD or administrative appeal is denied in whole or in part by the Commissioner the aggrieved taxpayer may appeal to the CTA within 30 days from the date of receipt of the decision.

If the protest to FAN/FLD or administrative appeal is not acted upon by the Commissioner within one hundred eighty days (180) from the date of filing the request for reconsideration or the lapse of sixty (60) days to submit additional documents if request for reinvestigation the tax payer may either:

1. Appeal to the CTA within thirty (30) days after the lapse of 180-day period; or

2. Await the final decision of the Commissioner’s duly authorized representative.

As can be seen from the discussion, once the Assessment Notices are issued, the process is already technical it becomes even more complicated when an FDDA is issued. One mistake, or a wrong mode of Appeal, can lead to a disaster. That is, the assessment becomes final, executory, and demandable.

This is also the reason why it is always best to close the assessment at the earliest opportunity. To close this, we again echo Sun Tzu, “every battle is won or lost before it is fought.”

The information above does not constitute legal advice and is meant for general information only. For more information or should you need legal advise tailor-fitted to your specific need, you may contact Atty. GPA.