REVENUE MEMORANDUM CIRCULAR NO. 86-2010 Subject : Publishing the full text of Opinion No. 48, S.

2010 of the Department of Justice OPINION NO. 48, S. 2010 Dear Commissioner Henares: This refers to your request for clarification on the query stated therein relating to the interpretation of the provisions of Section 282 of Republic Act No. 8424, otherwise known as the "National Internal Revenue Code (NIRC) of 1997. Specifically, you want to be clarified on "whether or not the Informer's Reward for providing information on violations of the tax laws amounts to ten percent (10%) of the amount collected or One Million Pesos (P1,000,000), whichever is lower as provided for under the NIRC of 1997. The legal provision adverted to, insofar as relevant, provides: SEC. 282. Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and in the Discovery and Seizure of Smuggled Goods.(A) For Violations of the National Internal Revenue Code. - Any person, except an internal revenue official or employee, or other public official or employee, or his relative within the sixth degree of consanguinity, who voluntarily gives definite and sworn information, not yet in the possession of the Bureau of Internal Revenue, leading to the discovery of frauds upon the internal revenue laws or violations of any of the provisions thereof, thereby resulting in the recovery of revenues, surcharges and fees and/or the conviction of the guilty party and/or the imposition of any of the fine or penalty, shall be rewarded in a sum equivalent to ten percent (10%) of the revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or One Million Pesos (P 1,000,000) per case, whichever is lower. The same amount of reward shall also be given to an informer where the offender has offered to compromise the violation of law committed by him and his offer has been accepted by the Commissioner and collected from the offender: xxx. (B) For Discovery and Seizure of Smuggled Goods. - To encourage the public to extend full cooperation in eradicating smuggling, a cash reward equivalent to ten percent (10%) of the fair market value of the smuggled and confiscated goods or One Million Pesos (P1,000,000) per case, whichever is lower, shall be given to persons instrumental in the discovery and seizure of such smuggled goods. The request, it appears, was precipitated by the unnumbered opinion issued by then Justice Secretary Raul M. Gonzales on a request filed by one Danilo A. Lihaylihay for the reconsideration of the letter-response to a request for clarification of a previous Department of Justice Opinion (No. 18, s. 2005 rendered upon the request of then Acting Finance Secretary Cesar V. Purisima which ruled that there is no conflict between Section 3513 of the Tariff and Customs Code, a special law, and the subject Section 282 of the NIRC of 1997, a general law. The unnumbered opinion, which passed upon the issue of whether or not Section 1 of R.A. No. 2338, also a special law, must be upheld as against Section 282(A) of the NIRC of 1997, in part, reads: We feel inclined to accept the stand taken by you in this regard and so hold that his case actually involved transcendental importance to the public and hereby render our opinion, thus: 2. Section 1 of Republic Act No. 2338 still prevails over Section 282(A) of the National Internal Revenue Code of 1997 (R.A. 8424); and, 3. The 25% monetary reward as provided for under Section 1 of R.A. No. 2338 shall be the legal basis of the Government in computing the payment of informer's reward. Hence, your instant request wherein you argue that, among other things, the informer's reward ceiling provided for under the NIRC of 1997, being the later expression of the legislative will must necessarily prevail and override R.A. No. 2338, the earlier law; and that Section 291 of the NIRC provides that laws, decrees, executive orders, rules and regulations, or parts thereof which are contrary to or inconsistent with this Code are hereby repealed, amended or modified accordingly. Subject to the discussions herein below provided, the query is resolved in the affirmative. Pursuant to established policy and precedents, and unless there are exceptional circumstance that warrant such step,2 this Department has consistently refrained from entertaining requests for clarification/reconsideration of the opinion of the Secretary of Justice, unless requested by the government

functionary for whom the opinion was rendered. Considering the facts and circumstances presented earlier, the unnumbered opinion subject for clarification should have not been issued in the first place as there appears to be no exceptional reason to warrant a second look at our Opinion No. 18, s. 2005. It must be stressed, at the outset, that the Opinion was issued upon the request of then Acting Finance Secretary Purisima. Hence, any request for clarification and/or reconsideration thereof should have come from the Finance Secretary. While the policy is not absolute, a reading of the documents on record, does not show that the reasons advanced by Mr. Lihaylihay are exceptional enough as to justify a review of the issued opinion and the issuance of the unnumbered one. Moreover, assuming, argumentatively, that there was indeed an exceptional circumstance for a review of Opinion No. 18, s. 2005, a careful review of the documents and the laws applicable convinced Us that the conclusion reached in the unnumbered opinion is off tangent and untenable. It must be stressed, at the outset, that contrary to the pronouncement contained in the unnumbered opinion, the Internal Revenue Code is not a general law but, like R.A. No. 2338, a special law. Thus, and as rightfully held by the Court of Tax Appeals in the case5 involving the same Danilo A. Lihaylihay, R.A. No. 2338, a special law, being irreconcilable and inconsistent with P.D. No. 1158, another special law, may be deemed to have been nullified by the later law. For the same reason, and as explicitly stated by the Supreme Court: "An erroneous construction of law cannot give rise to a vested right that can be invoked by a taxpayer. The reason is obvious: a vested right cannot spring from a wrong interpretation. This is to o clear to require elaboration. Besides, the Repealing Clause of P.D. No. 17739, which further amended certain sections of the 1977 NIRC, is clear and categorical, thus: SEC. 36. Repealing Clause. - The provisions of Republic Act Nos. 2338 and 4713, Presidential Decree Nos. 701 and 708, Sections 158-A, 193(c), 259-A and 281-A of the National Internal Revenue Code and all laws, rules and regulations or parts thereof inconsistent with the provisions of this Act are hereby repealed or amended accordingly. Undeniably, R.A. No. 2338 had been totally and expressly repealed by the 1977 NIRC, as amended by P.D. No. 1773. Stated differently, in view of provisions Section 36, above-quoted, in relation to Section 33111 of the 1977 NIRC, R.A. No. 2338 ceased to exist as part of the law of the land. A total repeal revokes the statute completely while an express repeal declares in the statute, usually in the repealing clause, as the case herein, that a particular and specific law, identified by its number or title, is repealed. The repealing clause of P.D. No. 1158, as further amended by P.D. No. 1773, is explicit enough that an interpretation is no longer necessaryonly application. The foregoing considered, we are of the considered view that absent any subsequent law amending Section 282 of the NIRC of 1977, the informer's reward amounts to ten percent (10%) of the revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or One Million Pesos (P1,000,000) per case, whichever is lower. This supersedes the unnumbered opinion subject of the instant request for clarification. Opinion No. 18, s. 2005 is likewise amended accordingly.

III. BIRs Power to Make Assessments

A. Upon examination of returns filed SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. (A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however; That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative.

Any return, statement of declaration filed in any office authorized to receive the same shall not be withdrawn: Provided, That within three (3) years from the date of such filing , the same may be modified, changed, or amended: Provided, further, That no notice for audit or investigation of such return, statement or declaration has in the meantime been actually served upon the taxpayer. B. In Case of Failure to Submit Required Reports SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. (B) Failure to Submit Required Returns, Statements, Reports and other Documents. - When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable. In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes.

Sy Po v CTA
C. After Inventory Taking or Surveillance SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. (C) Authority to Conduct Inventory-taking, surveillance and to Prescribe Presumptive Gross Sales and Receipts. - The Commissioner may, at any time during the taxable year, order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities, or may place the business operations of any person, natural or juridical, under observation or surveillance if there is reason to believe that such person is not declaring his correct income, sales or receipts for internal revenue tax purposes. The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct. When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of this Code, or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code, the Commissioner, after taking into account the sales, receipts, income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts, sales and taxable base, and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person. D. Where CIR Terminates Taxpayers Taxable Period SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. (D) Authority to Terminate Taxable Period. _ When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax, or is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property, or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately, the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision, together with a request for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter, or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed, unless paid within the time fixed in the demand made by the Commissioner. E. Issuance of Pre-Assessment Notice SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: provided, however, That a preassessment notice shall not be required in the following cases: (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 exciseable articles has not been paid; or (e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to nonexempt persons. The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable. RR 12-99 SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. 3.1 Mode of procedures in the issuance of a deficiency tax assessment: 3.1.1 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 Revenue 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. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the notice for informal conference, he shall be considered in default, in which case, 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 with the least possible delay to the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if warranted. 3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation by the Assessment Division or 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, at least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A hereof). 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 assessment notice shall be caused to be issued by the said Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. LibLex 3.1.3 Exceptions to Prior Notice of the Assessment. The notice for informal conference and the preliminary assessment notice shall not be required in any of the following cases, in which case, issuance of the formal assessment notice for the payment of the taxpayer's deficiency tax liability shall be sufficient: (i) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or (ii) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or (iii) 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 (iv) When the excise tax due on excisable articles has not been paid; or (v) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to nonexempt persons.

3.1.4 Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand 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 formal letter of demand and assessment notice shall be void (see illustration in ANNEX B hereof). The same shall be sent to the taxpayer only by registered mail or by personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt thereof. 3.1.5 Disputed Assessment. The taxpayer or his duly authorized representative may protest administratively against the aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof. If there are several issues involved in the formal letter of demand and assessment notice but the taxpayer only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed issues, in which case, a collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest. No action shall be taken on the taxpayer's disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said undisputed issues. The prescriptive period for assessment or collection of the tax or taxes attributable to the disputed issues shall be suspended. llcd The taxpayer shall state the facts, 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. If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to pay the corresponding deficiency tax or taxes attributable thereto. The taxpayer shall submit the required documents in support of his protest within sixty (60) days from date of filing of his letter of protest, otherwise, the assessment shall become final, executory and demandable. The phrase "submit the required documents" includes submission or presentation of the pertinent documents for scrutiny and evaluation by the Revenue Officer conducting the audit. The said Revenue Officer shall state this fact in his report of investigation. If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and demandable. If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable. In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized representative, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable: Provided, however, that if the taxpayer elevates his protest to the Commissioner within thirty (30) days from date of receipt of the final decision of the Commissioner's duly authorized representative, the latter's decision shall not be considered final, executory and demandable, in which case, the protest shall be decided by the Commissioner. cdtai If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period, otherwise, the assessment shall become final, executory and demandable. 3.1.6 Administrative Decision on a Disputed Assessment. The decision of the Commissioner or his duly authorized representative shall (a) state the facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based, otherwise, the decision shall be void (see illustration in ANNEX C hereof), in which case, the same shall not be considered a decision on a disputed assessment; and (b) that the same is his final decision. 3.1.7 Constructive Service. If the notice to the taxpayer herein required is served by registered mail, and no response is received from the taxpayer within the prescribed period from date of the posting thereof in the mail, the same shall be considered actually or constructively received by the taxpayer. If the same is personally served on the taxpayer or his duly authorized representative who, however, refused to acknowledge receipt thereof, the same shall be constructively served on the taxpayer. Constructive service thereof shall be considered effected by leaving the same in the premises of the taxpayer and this fact of constructive service is attested to, witnessed and signed by at least two (2) revenue officers other than the revenue officer who constructively served the same. The revenue officer who constructively served the same shall make a written report of this matter which shall form part of the docket of this case (see illustration in ANNEX D hereof).

Pilipinas Shell v. CIR (2007) CIR v. Menguito (2008)

F. Issuance of Final Assessment Notice SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: provided, however, That a preassessment notice shall not be required in the following cases: (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 exciseable articles has not been paid; or (e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to nonexempt persons. The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.

CIR v. Reyes (2006) CIR v. Enron (2009)

RR 12-99 SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. 3.1 Mode of procedures in the issuance of a deficiency tax assessment: 3.1.1 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 Revenue 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. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the notice for informal conference, he shall be considered in default, in which case, 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 with the least possible delay to the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if warranted. 3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation by the Assessment Division or 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, at least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A hereof). 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 assessment notice shall be caused to be issued by the said Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. LibLex 3.1.3 Exceptions to Prior Notice of the Assessment. The notice for informal conference and the preliminary assessment notice shall not be required in any of the following cases, in which case, issuance of the formal assessment notice for the payment of the taxpayer's deficiency tax liability shall be sufficient: (i) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or (ii) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or (iii) 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 (iv) When the excise tax due on excisable articles has not been paid; or (v) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to nonexempt persons. 3.1.4 Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand 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 formal letter of demand and assessment notice shall be void (see illustration in ANNEX B hereof). The same shall be sent to the taxpayer only by registered mail or by personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt thereof. 3.1.5 Disputed Assessment. The taxpayer or his duly authorized representative may protest administratively against the aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof. If there are several issues involved in the formal letter of demand and assessment notice but the taxpayer only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed issues, in which case, a collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest. No action shall be taken on the taxpayer's disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said undisputed issues. The prescriptive period for assessment or collection of the tax or taxes attributable to the disputed issues shall be suspended. llcd The taxpayer shall state the facts, 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. If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to pay the corresponding deficiency tax or taxes attributable thereto. The taxpayer shall submit the required documents in support of his protest within sixty (60) days from date of filing of his letter of protest, otherwise, the assessment shall become final, executory and demandable. The phrase "submit the required documents" includes submission or presentation of the pertinent documents for scrutiny and evaluation by the Revenue Officer conducting the audit. The said Revenue Officer shall state this fact in his report of investigation. If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and demandable. If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable. In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized representative, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable: Provided, however, that if the taxpayer elevates his protest to the Commissioner within thirty (30) days from date of receipt of the final decision of the Commissioner's duly authorized representative, the latter's decision shall not be considered final, executory and demandable, in which case, the protest shall be decided by the Commissioner. cdtai If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support

of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period, otherwise, the assessment shall become final, executory and demandable. 3.1.6 Administrative Decision on a Disputed Assessment. The decision of the Commissioner or his duly authorized representative shall (a) state the facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based, otherwise, the decision shall be void (see illustration in ANNEX C hereof), in which case, the same shall not be considered a decision on a disputed assessment; and (b) that the same is his final decision. 3.1.7 Constructive Service. If the notice to the taxpayer herein required is served by registered mail, and no response is received from the taxpayer within the prescribed period from date of the posting thereof in the mail, the same shall be considered actually or constructively received by the taxpayer. If the same is personally served on the taxpayer or his duly authorized representative who, however, refused to acknowledge receipt thereof, the same shall be constructively served on the taxpayer. Constructive service thereof shall be considered effected by leaving the same in the premises of the taxpayer and this fact of constructive service is attested to, witnessed and signed by at least two (2) revenue officers other than the revenue officer who constructively served the same. The revenue officer who constructively served the same shall make a written report of this matter which shall form part of the docket of this case (see illustration in ANNEX D hereof). 1. What Constitutes an Assessment? CIR v Pascor Republic v. CA Basilan Estates v. CIR Nava v. CIR Barcelon v. CIR Collector v. Bautista Adamson v. CA CIR v. Menguito 2. Presumption of Correctness of Assessment Sy Po v. CTA 3. Assessment Must be Based on Actual Facts CIR v. Benipayo CIR v. Hantex

G. Issuance of Tax Verification Notices and Letter Notices

REVENUE MEMORANDUM ORDER NO. 46-2004 issued on November 3, 2004 provides additional supplement and guidelines in handling Letter Notices (LNs) with discrepancies arising from Data Matching Process that remain unserved, have been served but are without response or are under protest by taxpayers. Discrepancy arising from the "no-contact-audit approach" shall represent the results of the computerized matching of data/information from third party sources/providers vis--vis return information filed by the taxpayers and not the results of an audit or investigation. Those LNs for which no responses have been received shall no longer be forwarded to the Special Concerns Group (SCG) [in case of Summary List of Sales/Summary List of Purchases (SLS/SLP) LNs] or the Technical Working Group (TWG) [in case of Bureau of Customs (BOC) LNs]. In the case of "no-response" LNs that involve discrepancies of less than 30%, the Revenue Officer (RO) concerned shall endorse the case to the Assessment Division of the Region, or its equivalent office in the Large Taxpayers Service, for the issuance of a Preliminary Assessment Notice (PAN) or Final Assessment Notice (FAN), as the case may be. However, if the discrepancy stated in the LN is 30% and above, the RO shall institute closure proceedings pursuant to the provisions of Revenue Memorandum Order No. 312002. In case a taxpayer protests the accuracy of the data provided by third party sources, the RO concerned shall evaluate the protest and require the taxpayer to execute a Sworn Statement attesting to the alleged inaccuracies or errors in the Third Party Information (TPI). The TPI provider (except BOC) shall also be required to execute a Sworn Statement attesting to the data provided. In case of tax evasion, based on the documents submitted by both the TPI providers and the taxpayer concerned, the Regional Director/Head of the Large Taxpayers Service, in addition to the filing of criminal charges, shall decide on the most appropriate enforcement action (i.e. audit/investigation, surveillance, stock-taking) that will expedite the recovery of the unpaid taxes.

If said enforcement action decided is the conduct of an audit/investigation, the audit to be conducted should - whenever possible - be an issue-based audit focusing on the information provided by the TPI source(s) and the explanation furnished by the taxpayer. A comprehensive audit shall be undertaken only when an issue-based audit is not feasible. Once the discrepancy has already been determined, the RO shall have a minimum of 30 days and a maximum of 60 days from submission of the Sworn Statement by the TPI source to terminate the audit/investigation. REVENUE MEMORANDUM ORDER NO. 7-2010 issued on January 25, 2010 prescribes the guidelines and procedures in handling Letter Notices (LNs) generated thru the Tax Reconciliation System (TRS) and Reconciliation of Listing for Enforcement System (RELIEF)/Third Party Matching - Bureau of Customs (TPM-BOC) Data Program for the Year 2008, which shall cover the Income, Value-Added, Percentage and Withholding tax liabilities for taxable year 2008 of individual and corporate taxpayers registered under the Large Taxpayers Service Regular, Excise and Large Taxpayers District Offices (LTDOs) and Revenue Region Nos. 4 to 9. LNs covering taxable year 2008 shall be deployed based on the parameters set by the a) Withholding Tax Division (WTD) for TRS-LN, together with the Details of Withholding Agents/Payors and Payees/Income Recipient Report (DWAPR), and the b) Audit Information, Tax Exemptions and Incentives Division (AITEID) for RELIEF-LN, together with the Details of Taxpayer's Customers/Suppliers (DTCS) and/or Details of Importations with Return Information Matching (DIRIM), via the Information Delivery Portal (IDP), as the case may be, and shall be approved by the Commissioner of Internal Revenue (CIR), through the Overall Head LN Task Force (LNTF). TRS-LNs covering taxable year 2008 shall be consolidated with RELIEF-LNs and shall be handled by the same investigating office (RO who shall handle TRS-LN shall be the same RO to handle RELIEF-LN) wherein the report of investigation/verification shall be forwarded to the Office of the Commissioner of Internal Revenue (OCIR), Attention: Overall Head LNTF, for proper disposition. The LNTF/concerned investigating offices shall prepare a Follow-up Letter and serve the same to the taxpayer if no response was received after 5 days from receipt by the taxpayer of the LN. In the event a taxpayer who has been issued an LN refutes the discrepancy, he/she/it shall be given an opportunity to reconcile his/her/its records with those of the BIR within 10 days from receipt of his/her/its LN and to submit documentary proofs in support of his/her/its arguments. If after 10 days from receipt of Follow-up Letter, no response was received from the taxpayer, or he/she/it fails to submit the required documents after filing the protest within the 5- day period after receipt of the LN, the LNTF/concerned investigating office shall endorse the docket and recommend to the OCIR (through the Overall Head LNTF) the issuance of an issue- based Letter of Authority (LA) to cover specifically "Income, Value-Added, Percentage and Withholding Taxes Due to Discrepancy/ies Reflected in the LN". A Notice for Informal Conference, together with the LA, shall be served to the taxpayer. If the taxpayer fails to settle his/her/its Income, Value-Added, Percentage and Withholding Tax liabilities resulting from LN discrepancy/ies within 5 days from receipt of Notice for Informal Conference and LA, the LNTF/concerned investigating office shall endorse the docket to the OCIR, Attention: Overall Head LNTF for any or a combination of the following actions: a. The issuance of the Preliminary Assessment Notice (PAN)/Final Assessment Notice (FAN) in accordance with the provisions of Revenue Regulations (RR) No. 12-99; b. If the under-declaration is 30% or more, the taxpayer may be recommended for the imposition of administrative sanction of suspension and temporary closure of business in accordance with the provisions of RMO No. 3 - 2009 (Oplan Kandado); c. The issuance of the compulsory process of Subpoena Duces Tecum (SDT). The issuance and enforcement of the SDT must be made in strict compliance with the procedures enunciated in RMO No. 35 - 1990 and RMO No. 9 - 2003 requiring the taxpayer to appear before the OVERALL HEAD LNTF thru the LN Secretariat for the presentation or production of his books of accounts and other accounting records. If the taxpayer fails, refuses or neglects to comply with the summons contained in the SDT, the LNTF/concerned investigating office shall endorse the docket to the appropriate legal office in the National or Regional Offices under its respective jurisdiction for the filing of a criminal case for violation of Section 266 of the NIRC of 1997, as amended. The investigating team/office shall likewise endorse the docket to the OCIR, Attention: Overall Head LNTF for the issuance of the Preliminary Assessment Notice (PAN)/Final Assessment Notice (FAN) in accordance with the provisions of Revenue Memorandum Circular No. 23 - 2000. For LNs being handled by the Revenue District Office (RDO)/Large Taxpayer Regular Audit Divisions (LTRAD)/Large Taxpayers Excise Audit Divisions (LTEAD)/Large Taxpayers District Offices (LTDO) originally assigned (with LAs issued whether the investigation is on- going or terminated) or assumed (referred by the LNTF), the respective investigating offices shall resolve the LN discrepancy within 30 days from receipt of the original/referral assignments. After the lapse of the 30-day

period and there is no resolution or action taken, except when the investigation office recommends for the administrative sanction of suspension and temporary closure of business under RMO No. 3 - 2009 or recommends for the issuance of an SDT, the LN will be referred back without delay to the LNTF, which shall immediately take-over the case for resolution of the LN discrepancy. For LNs being handled by the LNTF, whether originally assigned (LNs without LAs) or assumed (referred by RDO/LTRAD/LTEAD/LTDO), the LNTF shall resolve the LN discrepancy within 60 days from receipt thereof. After the lapse of the 60-day period and there is still no resolution or action taken thereon, except when the investigation office recommends for the administrative sanction of suspension and temporary closure of business under RMO No. 3 - 2009 or recommends for the issuance of an SDT, the LN will be referred, without delay, to the appropriate investigating office, which has jurisdiction over the principal place of business of the concerned taxpayer and such investigating office shall immediately take-over the case for resolution of the LN discrepancy. A list of Revenue Officers (ROs) who failed to comply with the 30/60 day rule will be forwarded to the Inspection Service for the issuance of a show cause order. Appropriate sanctions against erring ROs will be imposed, if warranted. "Revalida" of selected audit reports of investigation of erring ROs will be conducted. Reward for exemplary performance awaits those with excellent accomplishments. If there is an on-going audit/investigation pursuant to an LA for taxable year 2008 in accordance with the applicable audit program issued prior to LN deployment, the LNs (TRS and/or RELIEF) shall be consolidated with the corresponding LA. The TPI (third-party information) reflected in the said LNs shall be properly utilized and the extent of its utilization shall be included in the report of investigation by the concerned RO. The policy of non-closure of 2008 LA without the resolution of the LN will be strictly enforced. The LNTF/HEAD-LNTF in such cases shall review the utilization of the TPI which resulted to the discrepancy/ies reflected in the LNs. LNs which remain unserved due to failure to locate the taxpayers after exhausting all possible means shall be sent by registered mail to the office address indicated in the LN. If the LN sent by registered mail was returned to sender, the LNTF may recommend the cancellation of the registration of taxpayers that cannot be located. A list of unlocated taxpayers with cancelled registration shall be published in two (2) newspapers of general circulation. Unless the purchasers will be able to give the current business address of the LN recipient to the BIR, the purchases from these taxpayers with cancelled registration shall not be allowed as deduction for Income Tax purposes. Likewise, input taxes from these purchases will be disallowed for VAT purposes. "Returned to Sender" LNs shall likewise be endorsed to ORD, in case of RDOs; to OACIR-LTS, in case of TRAG/LTEAD/ LTDO; or to HEAD LNTF in case of LNTF Attention: AITEID, for inclusion in the cancelled registration database.

For taxpayer issued with an LN who transferred to another investigating office, the RDO/LTRAD/LTEAD/LTDO shall forward the LN, together with the DWAPR/TCS/DIRIM and documentary proofs to the OCIR, Attention: AITEID, for validation/cancellation. AITEID shall refer the same to Systems Operations Division (SOD) for regeneration. In the event that the case with LA is already terminated before the LN is issued, the Assessment Division (AD) Regional Office/Reviewing Office - Large Taxpayer Service (LTS) shall forward the docket of the closed case to the LNTF. The LNTF will ascertain whether the discrepancies reflected in the LNs were considered in the report of investigation. If the discrepancies were not included, the LNTF shall prepare the appropriate recommendation to the CIR thru the Overall Head LNTF, for appropriate review and approval. The LNTF may, at its option, forward the LA docket, together with the LN/s, to investigating office thru the Assessment Division (AD)/Reviewing Office - Large Taxpayer Service (RO-LTS), for appropriate action. If the discrepancy was considered, the LNTF shall recommend for the cancellation of the said LN/s to the OCIR. The OCIR shall refer the same to AITEID for final validation and/or cancellation. In all cases, the concerned investigating office shall forward the LN with LA tax dockets (which contain LN discrepancy findings and photocopies of the Memorandum Audit Report, Working Papers showing the reconciliation done and BIR Form 0500 Series) to the LNTF within ten (10) days after payment of deficiency tax(es), for approval thereof. The LNTF shall conduct review and evaluation of dockets on action taken on the LNs with LA as to extent of LN discrepancy utilization/payment and forward the same to the OCIR, Attention: AITEID, for appropriate action In case the taxpayer files a protest against PAN/FAN and requests for reinvestigation/reconsideration, the investigating team/offices shall forward the request to the Head-LNTF for evaluation of the protest in accordance with the provisions of RR No. 12-99. In case the taxpayer agrees with the findings covered by the LNs, an "Agreement Form" shall be executed by the taxpayer or his duly authorized representative indicating therein the amounts and dates when the deficiency tax(es) shall be paid. The concerned investigating offices (RDO/LTRAD/LTEAD/LTDO/LNTF) shall prepare BIR Form No. 0611-A, which shall serve as the basis for the payment of deficiency tax(es) according to the following criteria: P 1,000,000.00 or less . . . . . . . . . . . ACIR-LTS/RD Over P 1,000,000 up to P 5M . . . . . . Head-LNTF Over P 5M up to P 10M . . . . . . . . . . Overall Head LNTF Over P 10M . . . . . . . . . . . . . . . . . . . .CIR The taxpayer shall be entitled to the abatement of interests and penalties provided he pays the deficiency tax(es) within 30 days from receipt of the LN covering taxable year 2008. Any payment of tax liabilities beyond the 30-day period shall be assessed with the corresponding interests and penalties. Installment payment shall be allowed in cases where the tax liabilities exceed P500,000.00. In this case, a written request for installment payment of the basic tax due plus increments using the Application for Installment Payment must be accomplished. The interest corresponding to the basic tax due per installment shall be computed up to the date of payment as shown in the application. The settlement and payment of the deficiency tax(es) under an LN or issue-based LA by a taxpayer shall not preclude the BIR from issuing an LA/TVN covering the comprehensive audit/investigation of his tax liabilities, if warranted. However, any payment of deficiency tax(es) shall be credited against any assessment that may be made by the investigating office pursuant to an LA/TVN, provided the discrepancies disclosed by said audit/investigation are of the same nature as the discrepancies reflected in the LN. Revenue Memorandum Circular No. 40-2003 provides that LNs issued to taxpayers can be considered notice of audit/investigation insofar as the amendment of any return covering the period referred to in the LN. Accordingly, a taxpayer is disqualified from amending his return covering the period referred to in the LN upon issuance of the same. Furthermore, CTA Case No. 7093 dated February 22, 2006 states that "LNs issued against a taxpayer in connection with the information of under declaration of sales and purchases gathered through Third Party Information Program may be considered as a "notice of audit or investigation" in the absence of evident error or clear abuse of discretion."

1. Capital Gains Tax Returns