BIR Regs on Tax Assessment Due Process

Legal basis and coverage amendment

Section 1 grounds the issuance on Section 244 in relation to Section 245 of the National Internal Revenue Code of 1997 (Tax Code), as amended.
The regulation amends specific provisions of Revenue Regulations No. 12-99.
Section 2 deletes Section 3.1.1 of RR No. 12-99 (on preparation of a Notice of Informal Conference) and renumbers and restructures other parts of Section 3 of RR No. 12-99.
Section 3 amends Section 5.5 of RR No. 12-99 on computation procedures for taxes and surcharge in cases of late payment.

Purpose: due process in deficiency assessments

Section 3.1 requires a Preliminary Assessment Notice (PAN) procedure when the Commissioner determines there is sufficient basis to assess the taxpayer for deficiency taxes.
The PAN procedure is designed so the taxpayer is informed of the facts and the law, rules and regulations, or jurisprudence supporting the proposed assessment before issuance of the final demand/assessment notice.
The regulation establishes formal rules on what makes the assessment and decisions void if statutory or regulatory requirements are not met.

Due process procedure for deficiency tax

Section 3.1.1 requires the Bureau to issue a Preliminary Assessment Notice (PAN) when, after review and evaluation by the Commissioner or his duly authorized representative, there exists sufficient basis to assess deficiency tax.
The PAN must show in detail the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (Section 3.1.1).
If the taxpayer fails to respond within 15 days from receipt of the PAN, the taxpayer is considered in default, and a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued inclusive of applicable penalties (Section 3.1.1).
If the taxpayer responds within 15 days from receipt of the PAN that it disagrees with the findings, an FLD/FAN shall be issued within 15 days from filing/submission of the taxpayer’s response, inclusive of applicable penalties (Section 3.1.1).

Exceptions to prior notice (PAN)

Section 3.1.2 provides that, pursuant to Section 228 of the Tax Code, a PAN shall not be required in specified situations.
No PAN is required when the deficiency finding results from mathematical error in computation appearing on the face of the tax return filed (Section 3.1.2(i)).
No PAN is required when there is a discrepancy between the tax withheld and the amount actually remitted by the withholding agent (Section 3.1.2(ii)).
No PAN is required when the taxpayer opted to claim a refund or tax credit of excess creditable withholding tax and was found to have carried over and automatically applied the same amount against estimated tax liabilities for the succeeding taxable quarter(s) (Section 3.1.2(iii)).
No PAN is required when the excise tax due on excisable articles has not been paid (Section 3.1.2(iv)).
No PAN is required when an article locally purchased or imported by an exempt person (including vehicles, capital equipment, machineries and spare parts) has been sold, traded, or transferred to non-exempt persons (Section 3.1.2(v)).
In these cases, the FLD/FAN is issued outright (Section 3.1.2).

FLD/FAN, voidness, and protest rights

Section 3.1.3 requires that the FLD/FAN be issued by the Commissioner or his duly authorized representative.
The FLD/FAN must state the facts and the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, the assessment is void (Section 3.1.3).
Section 3.1.4 grants the taxpayer (or authorized representative or tax agent) the right to protest administratively the FLD/FAN within 30 days from receipt.
The taxpayer may file a written request for reconsideration or reinvestigation as part of the protest.
Section 3.1.4(i) defines request for reconsideration as reevaluation based on existing records without need of additional evidence.
Section 3.1.4(ii) defines request for reinvestigation as reevaluation based on newly discovered or additional evidence the taxpayer intends to present.

Protest content, default effects, and partial finality

Section 3.1.4 requires the protest to state: (i) the nature of protest (reconsideration or reinvestigation), and if reinvestigation, the newly discovered or additional evidence intended to be presented; (ii) the date of the assessment notice; and (iii) the applicable law, rules and regulations, or jurisprudence on which the protest is based.
If the protest does not comply with these content requirements, the protest is void and without force and effect (Section 3.1.4).
Where several issues exist but the taxpayer disputes only some issues, the assessment attributable to undisputed issues becomes final, executory and demandable, and the taxpayer must pay the deficiency tax attributable thereto, with a collection letter for payment including applicable surcharge and/or interest (Section 3.1.4).
Where several issues exist but the taxpayer fails to state facts/law supporting the protest for some issues, those issues are treated as undisputed, making their assessment attributable to them final, executory and demandable, and requiring payment with a collection letter including applicable surcharge and/or interest (Section 3.1.4).
If the taxpayer fails to file a valid protest within 30 days from receipt of the FLD/FAN, the assessment becomes final, executory and demandable, and no request for reconsideration or reinvestigation is granted for assessments already final (Section 3.1.4).

Reinvestigation document deadline and finality meaning

For requests for reinvestigation, the taxpayer must submit all relevant supporting documents within 60 days from filing the letter of protest (Section 3.1.4).
If the taxpayer does not submit the relevant supporting documents within 60 days, the assessment becomes final (Section 3.1.4).
The regulation defines “relevant supporting documents” as documents necessary to support the legal and factual bases in disputing a tax assessment as determined by the taxpayer (Section 3.1.4).
The 60-day submission rule does not apply to requests for reconsideration (Section 3.1.4).
The regulation defines “the assessment shall become final” to mean the taxpayer is barred from disputing the correctness of the issued assessment by introducing newly discovered or additional evidence, and the protest is denied (Section 3.1.4).

Administrative decisions, appeal to CTA, and deadlines

If the protest is denied, in whole or in part, by the Commissioner (through a duly authorized representative), the taxpayer may either (i) appeal to the Court of Tax Appeals (CTA) within 30 days from receipt of the decision, or (ii) elevate the protest through request for reconsideration to the Commissioner within 30 days from receipt of the decision (Section 3.1.4).
No request for reinvestigation is allowed in administrative appeal; only issues raised in the decision of the Commissioner’s duly authorized representative are entertained by the Commissioner (Section 3.1.4).
If the Commissioner (through duly authorized representative) does not act within 180 days counted from filing of the protest for reconsideration, the taxpayer may either (i) appeal to the CTA within 30 days after expiration of the 180-day period, or (ii) await final decision (Section 3.1.4).
If the Commissioner (through duly authorized representative) does not act within 180 days after the taxpayer’s required documents are submitted within 60 days for a reinvestigation protest, the taxpayer may also choose the same two options: CTA appeal within 30 days after the 180-day period or await final decision (Section 3.1.4).
Section 3.1.5 requires that the Final Decision on a Disputed Assessment (FDDA) states the facts and the applicable law, rules and regulations, or jurisprudence on which the decision is based; otherwise, the decision is void.
Section 3.1.5 also requires the FDDA to state that it is the Commissioner’s final decision.

Service rules for PAN, FLD/FAN, and FDDA

Section 3.1.6 permits service by the Commissioner or duly authorized representative through: personal service, substituted service, or service by mail.
Personal service requires delivering a copy to the party at its registered or known address or wherever found.
Substituted service applies when the party is not present at the registered or known address and requires specific witness and barangay-official steps:
- The notice may be left with a clerk or a person having charge at the registered or known address where business activities occur.
- If the known address is a residence, the copy may be left with a person of legal age residing there.
- If no person is found at the registered or known address, revenue officers must bring a barangay official and two (2) disinterested witnesses to observe and attest to the absence, then give the notice to the barangay official.
- If the party is present but refuses to receive the notice, revenue officers must bring a barangay official and two (2) disinterested witnesses to observe and attest to the refusal, then give the notice to the barangay official.
Disinterested witnesses are persons of legal age other than employees of the Bureau of Internal Revenue (Section 3.1.6).
Service by mail requires registered mail to the registered or known address with instruction to the Postmaster to return the mail to the sender after ten (10) days if undelivered; a copy may also be sent through a reputable professional courier, and if neither is available, by ordinary mail.
The server must accomplish the notice’s proof portion and file a written report under oath before a Notary Public or authorized person, stating manner, place, and date of service, and identifying the receiver (person/barangay/professional courier company).
The registry receipt or professional courier official receipt with sufficiently identifiable details is sufficient proof of mailing and must be attached to the case docket (Section 3.1.6).
Service to the taxpayer’s accredited tax agent/practitioner is deemed service to the taxpayer (Section 3.1.6).

Late payment computation for deficiency tax assessments

Section 5.5 of RR No. 12-99 is amended by Section 3 to address the computation of penalties and interest for late payment of a deficiency tax assessed.
For late payment of a deficiency tax assessed, the taxpayer is liable for delinquency interest under Section 249 (C)(3) of the Tax Code, as amended.
The amended rule provides that a deficiency tax assessed must be paid within the time prescribed in the notice and demand; otherwise, the taxpayer is liable for the delinquency interest incident to late payment (Section 5.5).
The regulation includes illustrative computations for late payment showing combined deficiency interest and delinquency interest effects and referencing penalty components used in the examples.

Repealing and effectivity provisions

Section 4 repeals, amends, or modifies any rules and regulations or parts inconsistent with the regulations’ provisions.
Section 5 provides effectivity after publication followed by 15 days in a newspaper of general circulation.