Materials For How To Handle BIR Audit Procedures of BIR Audit - 2021 Sept 21

How to Handle BIR Audit:
Procedures
21 September 2021 •
The SGV Purpose

Nurture leaders and enable businesses for a better Philippines. #SGVforABetterPhilippines
APAC No. 10000741

This material contains information in summary form and is therefore
intended for general guidance only and reference should be made to
the particular issuance, circular, memorandum or advisory. It is not
intended to be a substitute for detailed research or the exercise of
professional judgment. Neither SGV & Co. nor any other member of
the global Ernst & Young organization can accept any responsibility for
loss occasioned to any person acting or refraining from action as a
result of any information in this material. On any specific matter,
reference should be made to the appropriate advisor.
In providing these updates, we have relied upon our understanding of

current Philippine tax laws, regulations, rules, and issuances of the
relevant tax authorities as of this date. Should these laws, regulations,
rules, and issuances change, we will not be responsible for updating
the information herein, unless we are specifically requested to do so.
About the speaker
► Atty. Thyrza has diverse experience in providing business tax services to clients
from the power, manufacturing, consumer products, tobacco, business process
outsourcing (BPO), automotive and agricultural industries.
► She was a Tax Quality Reviewer for EY Vietnam. She is also an active facilitator for
SGV’s training programs and a speaker for SGV’s public tax seminars.
► Thyrza completed her Bachelor of Science degree in Accountancy at the Ateneo de

Davao University, where she also obtained her Juris Doctor degree. Thyrza is a
Thyrza F. Marbas CPA-lawyer.
Partner, Business Tax Services
Landline ► Thyrza completed the Executive Management Program of the National University of
+63 2 891 0307 loc. 8560 Singapore (NUS) Business School in June 2019. She is a recipient of the SGV
Special Award twice, first in 2015 and another in 2018 as a team member.
Mobile
+63 919 914 8107
Email
[email protected]
Page 3
Technicalities of BIR Audit
How to Handle BIR Audit:
Procedures
21 September 2021
The SGV Purpose

Nurture leaders and enable businesses for a better Philippines. #SGVforABetterPhilippines
APAC No. 10000741

Discussion outline
1 BIR Audit Program
2 Tax Assessment Procedure
3 Other Matters
Page 5 Technicalities of BIR Audit

BIR Collection Goal vs. Actual Collection
2016 – 2021 Revised CY 2021

(in Trillion Pesos) overall collection goal
2.500
2.000 1.829 1.779

2.039 1.962
2.330
2.170
1.899**
2.081 P2.081
Trillion
1.620 1.576 1.686
1.500
1.2059 *
1.000 Higher than CY 2020

collection goal by
0.500 P395.427 Billion
or 23.46%
-
2016 2017 2018 2019 2020 2021
Budget Actual
*Sources: (As of July 2021 Collection)

https://www.philstar.com/business/2021/07/17/2112997/bir-collections-breach-p1-trillion-surpass-target
https://www.bworldonline.com/bir-beats-july-collection-target/

BIR Audit Program
Page 7 Technicalities of BIR Audit #SGVforABetterPhilippines

Revised BIR Organizational Structure
RMO No. 1-2018 dated 6 March 2018

Primary jurisdiction over BIR audit
RMO No. 05-09 dated 22 January 2009
For the Regional • RDOs - for taxpayers registered in the various RDOs
Offices:
• Regular LT Audit Division 1, 2 and 3 - for Regular LT

For the Large
• Excise LT Audit Division 1 & 2 - for Excise Taxpayers
Taxpayers • LT Division — Davao
Service (LTS): • LT Division — Cebu

Exception to the Primary Jurisdiction of the BIR
RMO No. 05-09 dated 22 January 2009
Cases with prima

facie evidence of
tax fraud Shall be investigated by:
or • National Investigation Division; or
• Regional Investigation Division
Cases falling
under the RATE
Program

Jurisdiction of the BIR - PEZA and BOI-registered
enterprises
Case title Decision
CIR vs. Enjay Hotels, Inc. The BOI does not have exclusive jurisdiction to rule on whether a particular
CTA EB Case Nos. 1498 and 1500, source of revenue is part of the registered activity entitled to ITH incentive.
22 May 2018
While the BOI has the power to decide controversies, such is limited to those
concerning the implementation of EO 226 or the Omnibus Investments Code
between registered enterprises or investors and government agencies. The BIR
has exclusive jurisdiction on the assessment and collection of taxes, fees and
charges.
AGM Packaging System Ltd. The CIR has the authority to determine whether a PEZA-registered entity is
Corp. vs. CIR entitled to ITH or the preferential tax rate of 5%.
CTA EB Case No. 1734, 29 March
2019 The power and duty to assess national internal revenue taxes are lodged with
the CIR under Sections 2 and 6 of the NIRC. It logically follows that the CIR has
the authority to determine whether a PEZA-registered entity paid the proper
tax due, as confirmed under RR 01-00, as amended by RR 27-02.

Audit programs and target-specific issuances
► BIR Audit Program

RMO No. 4-2013 dated 8 March 2013 and RMO 19-2015 dated 15 September 2015, as amended by
RMO 64-2016 dated 7 November 2016
► Benchmarking
RMO No. 5-2012
► VAT Audit Program
RMO No. 19-2012, as amended by RMO 16-2015 dated 21 July 2015)
► Issue-based VAT Audit
RMO No. 59-2016
► Pre-audit of Tax Returns
RMO No. 25-2012
► RATE Program
RMO No. 24-2008
► Letter Notices Generated from Third Party Information Matching with Tax Returns
RMO No. 13-2012

Taxpayers covered by the Audit Program
RMO No. 19-2015 dated 19 September 2015
► Prescribes policies, guidelines and procedures to be observed in the audit/investigation of

tax returns to enhance taxpayers’ voluntary compliance
► In general, all taxpayers are considered as possible candidates for audit. The issuance,
however, provides for a list of:
1) Mandatory Cases,
2) Priority Taxpayers/Industries
3) Other Priority Audit

Mandatory cases
Request for tax clearance

Claims for tax
Taxpayers with claims for of taxpayers undergoing
refund/credit on
income tax refund or Taxpayers with claims for merger/consolidation/split
erroneous/double
issuance of tax credit VAT refund/credit -up/spin-off and other
payment of taxes,
certificate types of corporate
regardless of amount
reorganizations
Request for tax clearance

of taxpayers due to
retirement/cessation of
Policy cases covered by
Cases with unresolved Estate tax returns with business with gross
written directive of the
Letter Notices (LNs) other tax liabilities sales/receipts exceeding
Commissioner
P1,000,000 or gross
assets exceeding
P3,000,000

Priority taxpayers/industries
Taxpayers who have failed

to comply with the
Taxpayers mandatorily Taxpayers maintaining an
submission of information
covered to file returns ending inventory of 100% Taxpayers enjoying tax
returns required (e.g.,
using eFPS or eBIRForms or more of their gross exemptions/incentives
Alphalist, Inventory List,
but failed to use the same sales
List of Tenants, SLS/P,
eSales)
Issue-oriented audits Taxpayers who were Taxpayers reporting

Taxpayers whose
[e.g., transfer pricing, placed under surveillance, gross/net loss or no
compliance is below the
Base Erosion Profit Oplan Kandado and other taxable income or no tax
established benchmark
Shifting (BEPS), industry enforcement programs of due for two consecutive
rate
issues, etc.] the Bureau years

Priority taxpayers/industries (contd.)
Taxpayers deriving their

Taxpayers with claims for
Taxpayers with increase in revenue/income
Taxpayers with income losses/damages due to
assets of more than 50% exclusively or
tax due of less than 2% of natural calamities or
from the previous year substantially from their
gross sales/revenues those claiming inventory
but with reported net loss parent company/
obsolescence
subsidiaries/affiliates
Taxpayers with shared Professionals (e.g.,

expenses and other lawyers, doctors,
Taxpayers claiming write-
interrelated charges being engineers, architects,
off of input tax as
imputed by a parent CPAs, insurance agents,
allowable deduction in Real estate industry
company to its affiliates real estate service
their annual income tax
and likewise an affiliate to practitioners, etc.) with
returns
other affiliates in a low income and/or
conglomerate business tax compliance

Priority taxpayers/industries (contd.)
Contractors of National
Government Agencies
Hospitals, clinics,
(NGAs), Local Sellers of goods and Business process
medical/dental
Government Units (LGUs) services via e-commerce outsourcing companies
laboratories
and Government-
Controlled Corporations
Taxpayers with
intelligence information
such as specific business
Restaurants/fast food knowledge, third party
chains/catering Taxpayers with zero-rated data and publicly
Insurance companies
services/bars/coffee sales available information
shops (e.g., from media press
releases and actual
revenue/tax declaration
per return, etc.)

Other Priority Audit
► Other priority audit that may be identified by the Regional Director / ACIR-LT Service
► RD’s/RDO Other Audit Priority

► ACIR-LTS/Chief, LT Division’s – Makati and Cebu LT Division / Chief, LT Audit Division’s
Other Audit Priority
The above officials are not precluded from selecting taxpayers which do not fall within the foregoing criteria but may be
possible candidates under other priority audit.
Furthermore, the tax returns to be selected, for regional tax cases, shall consist of 60% Taxpayer Account Management
Program (TAMP) and 40% non-TAMP taxpayers of the Revenue District Office.

Audit for three consecutive years
► Amends Section III No. 4 of RMO No. 19-2015 (BIR Audit Program) in relation to audit
policies on taxpayers audited for the 3rd time
Original Provision under RMO No. 19-15 Amendments under RMO No. 64-16
If the taxpayer has been audited for the 2 years If the taxpayer has been audited for the last 2
and has been again selected for audit on the years and has been selected for audit on the
current or 3rd year, the RDO/LTD/LTAD shall current or 3rd year, the RDO/LTD/LTAD shall
submit a written explanation to the encode right away the requested audit of the
Commissioner, as to why such taxpayer shall be subject taxpayer in eLAMS/e-TIS CMS which shall
subjected to audit for 3 succeeding years, unless be approved by the Regional Director/ACIR who
it can be established that such taxpayer has an heads the investigating office.
under declaration of sales/income or
overstatement of expenses/deductions by at
least 30%.

Initiation of Audit

How are tax audits/investigations initiated?
Issuance of an Electronic Letter of Authority (eLOA) is considered a “notice of audit or

investigation” that prohibits amendment to any return covered in the period referred to in the
eLA.
Case title Decision
CIR vs. Sony Philippines, Inc. There must be a grant of authority before any revenue officer (RO) can conduct
G.R. No. 178687, 17 November an examination or issue an assessment. Thus, the BIR cannot extend its
2010 examination or assessment beyond the period covered by the LOA.
The LOA should cover a taxable period not exceeding one taxable year. The
practice of issuing an LOA covering audit of “unverified prior years” is
prohibited.
Dakay Construction & The LOA must be served or presented to the taxpayer within 30 days from its
Development Corporation vs. date of issue; otherwise it is null and void. (RAMO 1-2000)
CIR, CTA EB Case No. 1294, 03
April 2017
CIR vs. Farcon Marketing The LOA must be signed by the Revenue Regional Director, renders the tax
Corporation, CTA EB Case No. assessment a nullity
1306, 21 November 2016

How are tax audits/investigations initiated?
Case title Decision

Salcedo Ristorante Italiano, The authority of the RO emanated not from an LOA, but from a Tax Verification
Inc., vs CIR, CTA EB No. 1774, Notice (TVN) issued to another RO by the RDO. To prove the RO’s authority,
CTA Case No. 8880, 4 Nov 2019 BIR merely offered in evidence a Memorandum of Assignment which was
issued under the same TVN. Since the examination or assessment was done
while being devoid of authority, it follows that the subject deficiency taxes are
also inescapably void.
Jinzai Experts, Inc. v. CIR, The BIR contended that a TVN has the same force and effect as the LOA.
CTA Case No. 9473, November, 6
2019) Revenue examiners must be authorized, through a LOA. In the absence of a
LOA, the tax assessments issued by the BIR against such taxpayer shall be
void.”. The TVN was only signed by the Regional District Officer, and not by a
Revenue Regional Director. Correspondingly, the revenue examiner is without
any authority to assess or examine.

Mandatory Letter of Authority
RMC 75-2018 dated 5 September 2018
► Prior approval and authorization of the CIR or his duly authorized representatives are
needed, otherwise:
► No Tax Assessments! Any tax assessment without an LOA

► No Assessment Functions or Proceedings! violates the taxpayer’s right to due
process and is, therefore,
“inescapably void”

Sample Electronic Letter Of Authority

Proper Modes of Service
RMC No. 110-2020 dated 24 September 2020
1. Delivered through personal service by the RO assigned to the case or any BIR employee
duly authorized for the purpose at the taxpayer’s registered or known address or wherever
he may be found
2. Served either by substituted service or mail if personal service is not possible

► Registered address or Place where business activities are conducted
► Clerk or with a person having charge thereof
► Place of residence
► Person of legal age residing therein
3. Service to the tax agent/practitioner, who is appointed or authorized by the taxpayer in

accordance with existing revenue issuances, shall be deemed service to the taxpayer.

BIR audit checklist

Issuance of Subpoena Duces Tecum
► Failure to submit documents to the BIR within the period

prescribed in the written notice, or when the information
or records submitted are incomplete, can result in the
issuance of subpoena duces tecum (SDT) and even
criminal prosecution.
► RMO No. 10-2013 dated April 17, 2013, as amended by

RMO No. 08-2014 dated January 29, 2014, provides the
guidelines for the issuance of subpoena duces tecum.

Examination of books only once a year
General rule:
► The books of account shall be subject to examination and inspection: Provided, That for
income tax purposes, such examination and inspection shall be made only once in a taxable
year, except in the following cases:
Exceptions:
1. Fraud, irregularity or mistakes, as determined by the Commissioner;
2. The taxpayer requests for reinvestigation;
3. Verification of compliance with withholding tax laws and regulations;
4. Verification of capital gains tax liabilities; and
5. In the exercise of the Commissioner’s power under Section 5(B) to obtain information from
other persons in which case, another or separate examination and inspection may be made.
(Section 235, Tax Code as amended)

Keeping, Maintaining and Registration of Book of Accounts
RMC No. 29-2019 issued on 26 February 2019
► Taxpayers whose gross annual sales, earning, receipts or output exceed Php3,000,000*,
shall have their books of accounts audited and examined yearly by independent CPAs.
► All taxpayers are required to preserve their books of accounts, and other accounting records,
for a period of ten (10) years.
► First five (5) years - retain hard copies of the books of accounts, including subsidiary books
and other accounting records.
► Afterwards, only an electronic copy of the hardcopy in an electronic storage system
compliant with the regulations are needed.
*Stock corporation with total assets or total liabilities of P600,000 or more as prescribed under the Revised Corporation Code. [The General Financial
Reporting Requirements as stated in the Revised Securities Regulation Code (SRC) Rule 68 which was approved by the Commission En Banc on August 19,
2019]

Submission of Reports of Investigation/Verification on Tax
Cases/Dockets to the Reviewing Office
RMC No. 111-2016 (21 October 2016)
► A tax docket with deficiency tax collections/assessments shall be transmitted by the

investigating office to the reviewing/approving official not later than six (6) months prior to
prescription date
► e.g., if the income tax case will be prescribed on 15 April 2017, the docket should have
been transmitted on or before 15 October 2016
► The reviewing or approving official shall not accept any tax docket after the aforesaid period,
unless a duly accomplished “waiver form” is attached thereto

Assessment and Protest

BIR Assessment Stages
Assessment Stage Applicable BIR Issuance/s

NOD RR No. 22-2020
PAN RR No. 12-99; RR No. 18-13; RMC 11-2014
FLD/FAN RR No. 12-99; RR No. 18-13; RMC 11-2014
FDDA RR No. 12-99; RR No. 18-13; RMC 11-2014

Assessment and protest flowchart
RR No. 18-2013 dated 28 November 2013, as amended by RR No. 7-2018

RR No. 22-2020 dated 15 September 2020
Taxpayer Receipt of LOA with First Notice of Submission Second and Final Notice before
Subpoena Duces Tecum
Revenue officer is allowed only
120 days from the taxpayer’s
date of receipt of an LOA to BIR investigation / examination of returns and books of
conduct audit and submit the accounts
required report of investigation. Subpoena Duces Tecum
NOD which shall in no case extend beyond 30 days from

receipt of the NOD.
CIR or authorized representative issues a PAN
Taxpayer pays the amount and the

matter is settled and closed
Taxpayer answers within 15 days Taxpayer ignores the PAN
RO recommends the issuance of a

FAN/FLD

Effect of Failure of the Examiner to Render a Report w/in
120-day period
Case title Decision
AFP General Insurance The failure to revalidate the LOA after 120 days merely renders the same
Corporation vs. Commissioner unenforceable, inasmuch as the revenue officer must first seek ratification of
of Internal Revenue, his expired authority to audit to be able to validly continue investigation
G.R. No.222133, November 4, 2020 beyond the first 120 days.
That the revenue officer is unable to conduct further investigation does not
invalidate his/her authority during the first 120 days or the procedures already
performed within that period. Examiner may instead render a report based on
the results of the initial investigation from which the assessment may be
legitimately issued.

RR No. 18-2013 dated 28 November 2013, as amended by RR No. 7-2018

Issuance and receipt of FLD / FAN
Taxpayer files protest Taxpayer ignores the

within 30 days from Taxpayer pays the FLD/FAN; Assessment
receipt of FAN assessment; Audit is becomes final
closed
The Commissioner
Request for Request for issues a warrant of
reconsideration reinvestigation distraint and levy
(180 days)
Commissioner files
In reinvestigation, Taxpayer does not Taxpayer submits a civil case for
the BIR has 180 days submit documents documents within 60 collection
to respond from within 60 days days
submission of Case becomes an
documents.
ordinary collection
In reconsideration, case (follow
the BIR has 180 days FDDA issued
to respond from remedy under the
filing of protest. Rules of Court)

Decision or inaction on protest to the FAN/FLD
Taxpayer files Protest to FAN/FLD
The CIR or authorized The CIR or authorized Inaction by the CIR or authorized
representative cancels the representative denies the representative
assessment protest (FDDA)
End
Await the decision of CIR or

authorized representative
then appeal to CTA within 30
Appeal to the CTA within 30 days
If the CIR’s authorized days
representative denies the
protest, administrative appeal or
request for reconsideration to In reinvestigation, 30 days from lapse of
CIR within 30 days 180-day period from submission of
documents
In reconsideration, 30 days from lapse of

180-day period from filing of protest

Decision or inaction on protest to the FAN/FLD

Taxpayer files Administrative Appeal/Request for Reconsideration to the denial of the
Protest by CIR’s authorized representative
The CIR denies appeal

The CIR reverses the decision of Inaction by the CIR (lapse of
the authorized representative 180 days from date of filing of
and cancels the assessment. protest)
Appeal to the CTA within 30

End days from the receipt of the
decision or lapse of the 180-
day period
Await the decision of the CIR

 No reinvestigation allowed in the administrative appeal to the CIR. Only issues then appeal to the CTA
raised in the decision of the authorized representative are entertained by the CIR. within 30 days thereafter
 A motion for reconsideration on the CIR’s denial of the appeal does not toll the 30-
day period to appeal to the CTA.

Assessment proceedings before the CTA
Appeal to the CTA (division) within 30 days from

receipt of decision / lapse of the 180-day period
The CTA decides in favor of the taxpayer The CTA decides in favor of the CIR (denies
(orders cancellation of the assessment) protest and upholds assessment)
No MR File MR / MNT with the CTA Division within 15 days No MR

from the notice of the decision. Then appeal to CTA
EB.
Taxpayer pays
End
The CTA EB upholds the decision in favor of The CTA EB upholds the decision in favor of
the taxpayer the CIR
No appeal Appeal to the Supreme Court (Rule 45, Rules of No appeal

Court)
End Taxpayer Pays

Notice of Discrepancy

Notice of Discrepancy
RR No. 22-2020 dated 15 September 2020
Notice for
Notice of
Informal
Discrepancy
Conference
Taxpayer presents an explanation

Issuance of a deficiency tax
Discussion of Discrepancy and submits all necessary
RO informs the taxpayer of its assessment in the form of a PAN
(shall in no case extend beyond 30 documents
deficiency taxes through the NOD (within 10 days from the
days from receipt of NOD) (within 30 days from receipt of
conclusion of the discussion)
NOD)

Format of the Notice of Discrepancy
RMC No. 102-2020

Voluntary payments prior to issuance of PAN
RMC No. 11-2014 dated 18 February 2014
► Prior to the issuance of the PAN, the taxpayer may be allowed to make voluntary payments
of probable deficiency taxes and penalties.

Preliminary Assessment
Notice

BIR Officers authorized to sign and approve Assessment
Notices
► The PAN, FLD/FAN and FDDA shall be issued by the Commissioner or his duly authorized
representative.
► “Duly authorized representative” who issued the PAN, FLD/FAN, and FDDA refers to:
1) Revenue Regional Directors
2) Assistant Commissioner-Large Taxpayers Service (LTS)
3) Assistant Commissioner-Enforcement and Advocacy Service
► Revenue Delegation Authority Order (RDAO) No. 4-2018 delegates the authority to sign
and approve assessment notices and reports of investigation of the Divisions under the
LTS:
1) LTS Assistant Commissioner (PAN)
2) Deputy Commissioner for Operations (FAN/FLD)
3) Commissioner (FDDA)

Issuance of Preliminary Assessment Notice
Examination and Dispute the PAN

Issuance of PAN
review by filing Protest
• It is determined that there • PAN shall show in detail the • 15 days from receipt of PAN
exists sufficient basis to assess facts and the law, rules and
the taxpayer for any deficiency regulations, or jurisprudence
tax or taxes on which the proposed
assessment is based.

Issuance of PAN as a right to due process
Case title Decision

CIR vs. Yumex Philippines The right to due process violated when it received both the PAN and the FAN
Corporation on the same day.
G.R. No. 222476, 5 May 5 2021
The taxpayer has fifteen (15) days from the date of receipt of the PAN to
respond to the said notice. Only after receiving the taxpayer's response or in
case of the taxpayer's default can the BIR issue the FLD/FAN
Global Fresh Products, Inc. vs The BIR is duty bound to wait for the expiration of the 15 days from the date of
CIR the receipt of the PAN before issuing the FAN.
CTA Case No. 9718, 30 June 2020
Section 228 of the Tax Code gives the taxpayer 15 days from receipt of the
PAN to file a reply with the BIR. If during the said period, no protest to the PAN
is filed, it is only then that the BIR can consider the taxpayer in default and can
issue the FAN.

Final Assessment Notice

Issuance of Final Assessment Notice
Immediately if the taxpayer Within 15 days from filing of

fails to respond within 15 the taxpayer’s response or
days from receipt of the PAN protest to the PAN
• Taxpayer shall be considered in default • Issuance of FLD/FAN within 15 days

• Issuance of FLD/FAN from filing of the response calling for the
payment of the deficiency taxes,
inclusive of applicable penalties
FLD/FAN will be issued by BIR regardless of whether taxpayer protests the PAN
FLD/FAN calling for payment of taxes must include the facts, law, rules and regulations, and jurisprudence upon
which it is based. Otherwise, it shall be void.

Sample Final Letter of Demand

Protest to FAN / FLD
• The taxpayer or its authorized representative or

tax agent may protest administratively against the
Disputed Assessment FLD/FAN
• Within 30 days from date of receipt thereof
Failure to file a valid protest • Assessment shall become final, executory and
against the FLD/FAN within demandable.
30 days from receipt • No request for reconsideration or reinvestigation
shall be granted
thereof

Contents of a Valid Protest
RR No. 18-2013
► The taxpayer shall state in his protest:

1. 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;
2. Date of the assessment notice (i.e., establish timeliness of the filing of the protest); and
3. The applicable law, rules and regulations, or jurisprudence on which his protest is based.
► Otherwise, his protest shall be considered void and without force and effect.
► Taxpayers shall file their responses to the PAN and protests (requests for
reconsideration/reinvestigation) to the FLD/FAN with the duly authorized representative of
the Commissioner who signed the PAN and FLD/FAN. (RMC No. 11-2014 dated 18 February
2014)

Request for reinvestigation or Request for reconsideration
CIR vs. Philippine Global Communication, G.R. No. 167146, 31 October 2006;
Royal Bank of Scotland Phil., Inc. vs. CIR, CTA EB Case No. 446, 23 October 2009
Request for reconsideration Request for reinvestigation

► A plea of re-evaluation of an assessment on the ► A plea of re-evaluation of an assessment on the
basis of existing records without need of additional basis of newly discovered or additional evidence
evidence. that a taxpayer intends to present in the
► It may involve both a question of fact or of law or reinvestigation.
both. ► It may also involve a question of fact or of law or
both.
► 60 days to file
► The term ‘relevant supporting documents’ refers to
those documents necessary to support the legal
and factual bases in disputing a tax assessment, as
determined by the taxpayer.
Protest is void if it fails to indicate whether it is in the nature of reconsideration or reinvestigation.

(Asia Renal Care Philippines, Inc. vs. CIR, CTA EB Case No. 1502, promulgated 4 January 2018, affirmed on 30 May 2018)

Denial of a protest to FAN by CIR representative
RR No. 18-2013
► If the protest is denied (in whole or in part) by the CIR’s duly authorized representative, the
taxpayer may either:
1. Appeal or file a Petition for Review with the CTA within 30 days from date of receipt of
the decision; or
2. File a request for reconsideration with the CIR within 30 days from date of receipt of the
said decision.
► No request for reinvestigation shall be allowed in administrative appeal with the CIR.
► Only issues raised in the decision of the CIR’s duly authorized representative shall be
entertained by the CIR.

Denial of a protest to FAN by CIR
► If the protest to the FAN or administrative appeal, as the case may be, is denied (in whole or
in part) by the CIR, the taxpayer may appeal to the CTA within 30 days from date of receipt
of the said decision.
► Otherwise, the assessment shall become final, executory and demandable.
► A Request for Reconsideration on the CIR’s denial of the protest or administrative appeal
shall not toll the 30-day period to appeal to the CTA.

Deemed denial of a protest to FAN
Case title Decision

CIR vs. Algue, Inc. The issuance of the warrant of distraint and/or levy is tantamount to an
G.R. No. L-28896, 17 February 1988 outright denial of a request for reconsideration.
Yabes vs. Flojo, Institution of civil collection by the BIR can also be considered as denial of
G.R. No. L-46954, 20 July 1982 protest.
BIR vs. Union Shipping Corp.,
G.R. No. 66160, 21 May 1990

Denial of protest to FAN by inaction of CIR authorized
representative
► If the protest is not acted upon by the CIR’s duly authorized representative within 180 days
from filing of the protest in case of a request reconsideration, or 180 days from submission
by the taxpayer of the required documents in case of a request for reinvestigation, the
taxpayer may either:
Await the final decision of the CIR on the

File a Petition for Review with the CTA
disputed assessment and appeal such
Within 30 days after the expiration of the 180-day
final decision to the CTA
period
Within 30 days after the receipt of the decision.
► Taxpayer’s option is mutually exclusive: Appeal to CTA or await decision of CIR

(Spouses Evono vs. Department of Finance, CIR and Republic of the Philippines, CTA Case EB
No. 705, June 4, 2012)

Other Remedies Available
Abatement Compromise
Definition Cancellation of tax liability Payment of a certain percentage of the tax
liability
Grounds ►The tax or any portion thereof appears ► A reasonable doubt as to the validity of
to be unjustly or excessively assessed. the claim against the taxpayer exists; or
►The administration and collection costs ► The financial position of the taxpayer
involved do not justify the collection of demonstrates a clear inability to pay the
the amount due assessed tax
All criminal violations may be compromised

except: (a) those already filed in court, or
(b) those involving fraud.
Amount to be None Minimum of 10% of the basic assessed tax –
paid financial incapacity
Minimum of 40% of the basic assessed tax –
for other cases
Court Decisions

Issuance of PAN/FAN/FDDA as a right to due process
Case title Decision

CIR v. Freelife Philippines Issuance of the FAN via electronic mail (e-mail) is not sanctioned by any law,
Distribution, Inc.- Phil Branch rules or regulations.
CTA EB No. 1714, 4 January 2019
FAN/FLD shall be sent to the taxpayer only by registered mail and by personal
delivery.
Square One Realty Corporation Failure to prove actual receipt of the FAN/FLD by the taxpayer or by its
vs. CIR authorized representative is fatal and renders the assessment void for
CTA Case No. 9484, 30 June 2020 noncompliance with the due process requirements.
Getz Pharma (Phils.), Inc. vs. The receipt of FAN by unauthorized personnel cannot be deemed receipt by the
CIR taxpayer.
CTA Case No. 8922, 17 January
2020 The submission of a protest by the taxpayer will not cure the infirmity.

Case title Decision

PCI Management Solutions, Service of PAN/FAN to taxpayer’s former address is valid if no notice was given
Inc. vs. Kim S, Jacinto for change of address.
Henares
CTA Case No. 9038, 2 July 2019
Trorev Realty Co. vs. CIR BIR has burden to prove that the taxpayer received the required notices in case
CTA Case No. 9251, 18 July 2019 the latter denies receipt.
Mannasoft Technology Corp. FLD/FAN shall be sent to the taxpayer only by registered mail or by personal
vs. CIR delivery.
CTA Case No. 8745, 13 January
2017
CIR vs. Xylem Water Systems If the taxpayer denies having received an assessment from the BIR, it becomes
International, Inc. incumbent upon the latter to prove by competent evidence that such notice
CTA EB Case No. 2120, 12 March was indeed received by the addressee.
2021

Case title Decision

Misnet, Inc. vs. CIR FDDA will not be considered a final decision of the CIR, which is appealable to
G.R. No. 210604, 3 June 2019 the CTA, if in addition to the FDDA, an Amended Assessment Notice was
issued, stating that the taxpayer must file a protest with the CIR or the RD
within 30 days from receipt of the AAN.
CIR vs. Megabucks Due to failure to state the due dates for the payment of the deficiency taxes in
Merchandising Corporation the FAN/FLD and the definite amount of taxes to be paid, the assessments
CTA EB Case No. 1974, 12 February cannot be considered ripe for enforcement and the obligation for such
2020 deficiency taxes may not be deemed legally demandable. Thus, the tax
assessments are void.
Robbie Stylographic and A FAN that lacks the definite amount of tax liability for which the taxpayer is
Development Corporation vs. accountable, is not a valid assessment.
CIR
CTA Case No. 9774, 17 November
2020

Case title Decision

CIR vs. Builders Steel A Mission Order is not an acceptable substitute for the lack of an LOA. There
Corporation must be a grant of authority by the CIR or his duly authorized representative
CTA EB No. 2080, 28 January 2020 before any revenue officer can conduct an examination or assessment.
Rizal Provincial Government FDDA must contain a statement of facts, law or jurisprudence, on which the
vs. CIR decision is based.
CTA Case No. 8918, 12 March 2020

Prescription

Prescriptive Period to Assess and Collect
Period to Assess
► Three (3) years after the (a) last day from the deadline of the filing of the return or (b) the
actual date of the filing of the return, whichever comes later. (Section 203, Tax Code)
► In case of filing of a false or fraudulent return with intent to evade tax, or failure to file a
return, ten (10) years after the discovery of the falsity, fraud, or omission. (Section 222, Tax
Code)
Period to Collect
► Five (5) years from the assessment of the tax, through distraint/levy or by a proceeding in
court.
The prescriptive period for Returns with substantial amendments shall be

counted from the filing of the amended return.

Prescriptive Period to Assess and Collect
Case title Decision

Ishida Philippines Tube Co., It is incumbent upon the taxpayer to show which portion of said deficiency
Inc., vs. CIR taxes pertain to the prescribed months and in the absence of proof, the court
CTA Case No. 9729, 18 March 2021 has no alternative but to uphold the validity and correctness of the assessment
(Resolution) and consider the entire assessment as pertaining to the unprescribed portion
of the taxable year.

Suspension of the Prescriptive Period
Clarification under RMC No.

Under RR No. 11-2020
136-2020
The suspension shall start from
Counting of the three (3)-year
March 16, 2020 when the state of
prescriptive period for the period to
emergency was declared due to
assess and the five (5)-year period
COVID 19 virus until sixty days
to collect, shall exclude the number
after the lifting of the quarantine.
of days covered by the period of
suspension, which is a total of one
Illustration: hundred thirty-seven (137) days.

Other Issuances re: Suspension of the Prescriptive Period
BIR Issuance Start of Suspension End of Suspension Total days of

suspension
RMC No. 136-2020 in re March 16, 2020 July 31, 2020 137 days
RR 11-2020*
RMC No. 80-2021** March 29, 2021 July 13, 2021 106 days
RMC No. 93-2021** August 4, 2021 November 14, 2021 102 days
TOTAL 345 days
*Applicable throughout the Philippines

**This Circular shall apply nationwide on areas placed under ECQ and MECQ.

Extension of the deadline for filing of papers, letters and
documents during ECQ and MECQ
RMC No. 92-2021
Deadline for filing of the following position papers, replies, protests and other similar letters and correspondences
falling due on August 6, 2021 and during the ECQ and MECQ period, including extensions thereof, for taxpayers
registered with the Revenue District Offices (RDOs) in areas covered by the ECQ and MECQ declaration or for
registered taxpayers is hereby extended as follows:
Letter/Correspondence Extended Deadline
Position Paper and Supporting Documents in Response to Notice of 30 days from lifting of the ECQ and/or MECQ
Discrepancy
Reply and Supporting Documents in Response to the Preliminary Assessment 15 days from lifting of the ECQ and/or MECQ
Notice (PAN)
Protest Letter in Response to the Final Assessment Notice/Formal Letter of 30 days from lifting of the ECQ and/or MECQ
Demand (FAN/FLD)
Transmittal Letter and Supporting Documents in 30 days from lifting of the ECQ and/or MECQ
relation to Request for Reinvestigation
Request for Reconsideration to the Commissioner of Internal Revenue (CIR) 30 days from lifting of the ECQ and/or MECQ
on Final Decision on Disputed Assessment (FDDA)
Submission of Documents in Response to 15 days from lifting of the ECQ and/or MECQ
Subpoena Duces Tecum
Submission of Documents in relation to First, Second, and Final Notice 10 days from lifting of the ECQ and/or MECQ
Other Similar Letters and Correspondences 30 days from lifting of the ECQ and/or MECQ
Filing of VAT Refund with VCAD 30 days from lifting of the ECQ and/or MECQ

Waiver

On Waivers
Case title Decision

CIR vs. Next Mobile, Inc. Both the BIR and the taxpayer, in this case, are in pari delicto.
G.R. No. 212 825 7 December 2015
In this case, Next Mobile executed waivers through their representative
although her authority to sign these waivers was not presented upon their
submission to the BIR. On the other hand, the BIR has failed five times to verify
the authority of the said representative to execute the waivers.
The SC ruled that both parties knew the infirmities of the waivers, yet they
continued dealing with each other without rectifying such infirmities. Next
Mobile deliberately executed defective waivers and then raised the very same
deficiencies it caused to avoid the tax liability, when by virtue of these waivers,
it was given the opportunity to gather and submit documents to substantiate
its claims during the investigation.

Salient Provisions on the Execution of a Waiver
RMC No. 141-2019 dated 20 December 2019
► The Waiver is a unilateral and voluntary undertaking which shall take legal effect and be binding on the
taxpayer immediately upon his execution thereof.
► The Waiver need not specify the type of taxes to be assessed nor the amount thereof.
► It is no longer required that the delegation of authority to a representative be in writing and notarized.
► The taxpayer cannot seek to invalidate his Waiver by contesting the authority of his own representative.
► It is the duty of the taxpayer to submit his Waiver to the officials listed in the said RMO prior to the
expiration of the period to assess or to collect as the case may be.

► In addition to the previously authorized officials, the RDO or Group Supervisor as designated in the
Letter of Authority or Memorandum of Assignment can accept the waiver.
► The date of acceptance by the BIR Officer is no longer required to be indicated for the Waiver's validity.
► The taxpayer shall have the duty to retain a copy of the submitted Waiver.
► Notarization of the Waiver is not a requirement for its validity.

► The taxpayer is charged with the burden of ensuring that his Waiver is validly executed when submitted
to the BIR. Thus, the taxpayer must ensure that his Waiver:
a. Is executed before the expiration of the period to assess or to collect taxes

b. Indicates the expiry date of the extended period
c. Indicates the type of tax (for waiver of the prescriptive period to collect)
d. Is signed by his authorized representative
► There is no strict format for the Waiver. The taxpayer may utilize any form with no effect on its validity.
Given the sparse requirements of RMO No. 14-16, an illustration of its key elements is provided herein
as Annex "A".

Other Matters

Deductibility of expense subjected to withholding taxes only at the
time of audit investigation or reinvestigation/ reconsideration
RR No. 6-2018*
► Reinstates provisions of Section 2.58.5 of RR No. 14-2002 as amended by RR No. 17-2003:
“Section 2.58.5. Requirements for Deductibility – Any income payment which is otherwise deductible
under the Code shall be allowed as a deduction from the payer’s gross income only if it is shown that
the income tax required to be withheld has been paid to the Bureau in accordance with Sections 57 and
58 of the Code.
A deduction will also be allowed in the following cases where no withholding was made:
A. The payee reported the income and pays the tax due thereon and the withholding agent pays
the tax including the interest incident to the failure to withhold the tax, surcharges, if
applicable, at the time of the audit/investigation or reinvestigation/reconsideration.
*Shall take effect 15 days after 23 January 2018 (date of Publication – Manila Bulletin)

Failure to file the Alphabetical List of Payees/Employees
does not result to non-deductibility of expense
► Clarifies the sanctions for the non-submission of Alphabetical List of Employees/Payees of

Income Payments particularly Q&A No. 15 of RMC No. 5-2014 on the non-deductibility of
expenses for income tax purposes.
Original Provision under RMC No. 5-2014 Superseding Provision under RMC no. 100-2017*
The taxpayer cannot claim the expenses for income tax Failure to file the Alphabetical List of Payees/Employees or
purposes due to its failure to file the prescribed alphalist or its failure to re-submit the complete and corrected alphabetical list
failure to re-submit the complete and corrected alphalist after after the validation process conducted by the BIR shall not
the validation process conducted by the BIR. result to the non-deductibility of the expenses considering that
the taxes corresponding thereto were already withheld and
remitted.
*However, a compromise penalty of P1,000 shall be imposed for each failure to make, file or submit the said information return wherein
the aggregate amount to be imposed for such failures during the calendar year shall not exceed P25,000 pursuant to RMO No. 7-2015

Policies on the issuance of ATCA
RMO 33-2018 dated 16 April 2018 issued on 12 July 2018
► The ATCA shall be issued as proof of cancellation of assessments covered by FAN/FLD, which
were recorded in Form 40.00-Protested/Accounts Receivables(AR)/Delinquent Account (DA)
cases, in the following instances:
1. The difference between the original and the reduced tax assessments after the originally
issued FAN/FLD has been modified, amended, or declared “null or void” by virtue of a
final administrative decision by the CIR or his duly authorized revenue official as shown
in the FDDA.
2. Final approval of the corresponding application for compromise settlement and
abatement or cancellation of penalties pursuant to Section 204(a) of the Tax Code and
IRR.
3. Decision by the competent court where the assessment was either modified, amended or
declared “null and void” with finality as shown in the entry of judgment.
RMO 33-2018 (cont.)
4. The AR/DA case is declared uncollectible by a competent court with finality due to insolvency.
5. Availment of tax amnesty by a taxpayer, which is included in the List of Tax Amnesty Availers
provided by the Office of the Commissioner or Deputy Commissioner, Operations Group
6. Condonation of the assessment by virtue of law, provided that the required documentations have
been submitted, evaluated and approved by the Commissioner or his authorized RO.
7. When the right of the government to assess/collect the corresponding deficiency/delinquent taxes
has prescribed, and the cancellation has been approved by the Commissioner based on the
recommendation of the National Committee on Prescribed fees

RMO 33-2018 (cont.)
8. AR/DA case/s that are recommended for write-off and approved by the Commissioner or his duly
authorized representative on the grounds such as, but not limited to the following:
► Individual taxpayer is deceased , and no distrainable or leviable assets could be found
► Permanent cessation of the business
► Dissolution
► Taxpayer is a general partnership and the individual partners are already deceased
► AR/DA cases with a total amount due of Php20,000.00 and below, provided that all collection
enforcement summary remedies have been fully exhausted
9. Such other meritorious cases, which the Commissioner may deem necessary to be covered by
ATCA.
Issuance of an ATCA
RMO 33-2018 (cont.)
► Within seven (7) working days from receipt of the case docket, the concerned approving
revenue official shall approve/ act upon the tax case recommended for partial/full
cancellation.
► Tax assessment with issued FAN/FLD or AR/DA case referred for resolution of issues
involving questions of law, due process and/or alleged prescription of the Bureau’s right to
assess/collect tax liabilities shall be resolved within 30 days from receipt of the protested
docket/AR/DA case/s.
The tax dockets shall then be returned immediately to the originating office for appropriate
action.

Questions and Answers

Page 82
Pag
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How to Handle BIR Audit:

The SGV Purpose

APAC No. 10000741

In providing these updates, we have relied upon our understanding of

► Thyrza completed her Bachelor of Science degree in Accountancy at the Ateneo de

The SGV Purpose

APAC No. 10000741

1 BIR Audit Program

2 Tax Assessment Procedure

Page 5 Technicalities of BIR Audit

2016 – 2021 Revised CY 2021

2.000 1.829 1.779

1.000 Higher than CY 2020

*Sources: (As of July 2021 Collection)

Page 6 Technicalities of BIR Audit

Page 7 Technicalities of BIR Audit #SGVforABetterPhilippines

RMO No. 1-2018 dated 6 March 2018

Page 8 Technicalities of BIR Audit

RMO No. 05-09 dated 22 January 2009

• Regular LT Audit Division 1, 2 and 3 - for Regular LT

Page 9 Technicalities of BIR Audit

RMO No. 05-09 dated 22 January 2009

Cases with prima

Page 10 Technicalities of BIR Audit

Page 11 Technicalities of BIR Audit

► BIR Audit Program

Page 12 Technicalities of BIR Audit

RMO No. 19-2015 dated 19 September 2015

► Prescribes policies, guidelines and procedures to be observed in the audit/investigation of

Page 13 Technicalities of BIR Audit

Request for tax clearance

Request for tax clearance

Page 14 Technicalities of BIR Audit

Taxpayers who have failed

Issue-oriented audits Taxpayers who were Taxpayers reporting

Page 15 Technicalities of BIR Audit

Taxpayers deriving their

Taxpayers with shared Professionals (e.g.,

Page 16 Technicalities of BIR Audit

Page 17 Technicalities of BIR Audit

► RD’s/RDO Other Audit Priority

Page 18 Technicalities of BIR Audit

Page 19 Technicalities of BIR Audit

Page 20 Technicalities of BIR Audit #SGVforABetterPhilippines

Issuance of an Electronic Letter of Authority (eLOA) is considered a “notice of audit or

Page 21 Technicalities of BIR Audit

Case title Decision

Page 22 Technicalities of BIR Audit

RMC 75-2018 dated 5 September 2018

► No Tax Assessments! Any tax assessment without an LOA

Page 23 Technicalities of BIR Audit

Page 24 Technicalities of BIR Audit

RMC No. 110-2020 dated 24 September 2020

2. Served either by substituted service or mail if personal service is not possible

► Clerk or with a person having charge thereof

► Person of legal age residing therein

3. Service to the tax agent/practitioner, who is appointed or authorized by the taxpayer in

Page 25 Technicalities of BIR Audit

Page 26 Technicalities of BIR Audit