Business Mirror

Atty. Lino Ernie M. Guevara continues to tackle the rest of the assessment procedure focusing on the strict ‘due process’ requisite for the assessment notice to state both the factual and legal bases of the BIR assessments as well as highlighting the administrative and judicial remedies available to the taxpayer under the law.

ASSESSMENT UNPLUGGED: Solving the BIR Audit Conundrum (Part II)

Atty. Lino Ernie M. Guevara

Following the signing of “Bayanihan to Heal as One Act” (Republic Act No. 11469), coupled with the WHO declarations and Presidential Proclamations combatting the COVID-19 pandemic, effectively prohibiting the BIR from making and serving assessment notices, came next the suspension of the running of the Statute of Limitations to assess under the Tax Code. It is for a period starting on March 16, 2020 until the lifting of the state of the national emergency and for 60 days thereafter. Still, understanding better the tax assessments would always be handy once the BIR commences to assess.

Previously, we discussed the assessment procedure from the issuance of the electronic Letter of Authority (eLA) up to the Preliminary Assessment Notice (PAN) stage with some key questions to initially test the assessment’s validity. Now, we will tackle the rest of the process with additional pointers to guide you.

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

After the PAN comes the FAN. The FLD/FAN issuance, not the PAN, constitutes the BIR assessment contemplated under our tax laws. BIR should assess within the 3-year prescriptive period (10 years if with allegation of fraud or false returns or failure to file returns). The same may be suspended though under certain conditions as what happened now. Since the FLD/FAN receipt constitutes the date of assessment which ought to be done within the prescriptive period, it should be accurately determined, together with the authority of the person receiving it.

Assessment is VOID if made by the BIR beyond the said 3- or 10-year prescriptive period under the law. Prescription depends on the type of taxes being assessed based on their filing dates. For instance, income tax assessment prescribes in 3 years counted from the Annual ITR filing. The quarterly VAT Returns are considered final returns, and thus, prescribe on a quarterly basis. Said statutory period to assess is extendible by the taxpayer’s execution of a valid waiver for the defense of prescription and its acceptance by the BIR.

Remember that the most important requisite for the FLD/FAN is its strict compliance with due process mandated under Section 228 of the 1997 Tax Code, as amended. It is one of the more groundbreaking amendments under the previous Tax Reform Act of 1997. It means that the assessment notice should state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, it is VOID. Due process is a complex issue being “a malleable concept anchored on fairness and equity”. Simply put, the basic question for due process compliance is whether the taxpayer has been duly given by the BIR all the opportunities and needed information to reasonably and intelligently contest such assessment.

Questions to Ask:
• Was the FLD/FAN issued within the prescriptive period of 3 years (or 10 years)?
• Was the said FLD/FAN validly received by the taxpayer’s authorized representative?
• Did the FLD/FAN state both the factual and legal bases to comply with due process?

Protesting the FLD/FAN and Submitting Relevant Supporting Documents

It is mandatory for the taxpayer to file a protest, by way of a Motion for Reinvestigation or Reconsideration, within the non-extendible period of 30 days AFTER the FLD/FAN receipt. A “Request for reinvestigation” refers to a plea for re-evaluation of an assessment based on newly discovered or additional evidence a taxpayer intends to present. A “Request for reconsideration” is a plea for re-evaluation based on existing records without need of additional evidence. Distinguishing between them is vital relating to the right to submit relevant supporting documents sixty (60) days after filing the protest. "Relevant supporting documents" are those necessary to support the legal and factual bases to dispute the assessment. Said 60-day period to submit shall not apply to requests for reconsideration.

The taxpayer must raise all the factual explanations/reconciliations as well as the legal bases for the protest on each and every item of the assessments under the FLD /FAN. If not, these uncontested issues are considered by the BIR as undisputed issues with the assessment becoming final and demandable. More importantly, failure to protest within the prescribed period makes such assessment final, executory and demandable.

Question to Ask:
• Did the BIR observe the period prescribed for taxpayer to submit the relevant supporting documents for the protest, i.e., Motion for Reinvestigation?

Issuance of Final Decision on Disputed Assessment (FDDA)

After the BIR’s evaluation of the protest filed together with the relevant supporting documents, the BIR should then issue the FDDA. No period is provided by law for the BIR to issue a final decision on the protest. The FDDA is also required to state the facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based and that the same is his final decision; otherwise, the decision shall be void.

Questions to Ask:
• Did the FDDA comply with the due process requirement by stating the facts, applicable laws, regulations or jurisprudence upon which said decision is based?
• Was it clear in the FDDA issued that the same was the BIR’s final decision?

Administrative and Judicial Appeals

If the protest filed is DENIED by the BIR Commissioner's duly authorized representative, the taxpayer may either: (i) appeal to the Court of Tax Appeals (CTA) within 30 days from date of receipt of the decision; or (ii) file a request for reconsideration with the Commissioner within 30 days from receipt thereof. No request for reinvestigation is allowed in administrative appeal. Only issues raised in previous decision shall be entertained by the Commissioner.

If the protest is NOT ACTED upon by the BIR Commissioner's authorized representative within 180 days from the: (i) date of filing of the protest, for a request reconsideration, or (ii) date of submission of documents within 60 days from filing of protest, for a request for reinvestigation, the taxpayer has TWO OPTIONS: (1) APPEAL to the CTA within 30 days after the 180-day period expiration; OR (2) AWAIT the final decision of the Commissioner's duly authorized representative on the assessment. These two options are mutually exclusive and resort to one bars the application of the other.

If the protest or administrative appeal, as the case may be, is denied by the Commissioner, the taxpayer may judicially appeal to the CTA within 30 days from date of receipt of said decision. Otherwise, the assessment shall become final, executory and demandable.

In a nutshell, these are the assessment procedures and your starting point to evaluate and strategize. Certainly, it would also not hurt to consult those who have the technical expertise and experience to properly assist you in the handling of BIR assessments.

As people now try to combat this current health crisis, there’s also hope to contain a BIR assessment, once commenced, with the right understanding and support. But to panic, much like in a pandemic, would simply not solve your assessment conundrum.