Taxpayer’s remedies against assessment and collection by BIR

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Published — August 24, 2017

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

Read also: Frequently Asked Questions on Credit and Collection Laws

As the saying goes, the only two things certain in this world are death and taxes. With this in mind, it is very important for taxpayers, especially for business owners, to make sure that they are able to file their tax returns and pay their taxes timely and correctly. Otherwise, they risk being subjected to more complications when the Bureau of Internal Revenue (“BIR”) starts going after their businesses to collect the taxes still due.

In such instances, however, taxpayers are not completely helpless, as they may avail of certain remedies under the law in case they are faced with tax assessments and actions for collection. Therefore, even though most business owners are conscious in hiring their own accountants to attend to matters on tax compliances, it is still best for business owners to be aware of their legal remedies in case things go wrong (hopefully not).

Preliminary and formal assessment notices

As a rule, a Preliminary Assessment Notice (“PAN”) is issued to a taxpayer as the first step in assessment. It serves as a notice that the taxpayer still has some taxes due. Said PAN is issued when:

1. The taxpayer fails to file a return, or
2. The taxpayer files a return but fails to pay the tax, or
3. The taxpayer pays the tax but the same is insufficient.

If a taxpayer fails to respond to the PAN, he will be sent a Formal Assessment Notice (“FAN”) by the BIR [Sec. 228, NIRC].

Once a FAN is issued, and if the taxpayer is satisfied with the correctness of the assessment, then he may opt to simply pay the tax. However, if the taxpayer intends to contest the assessment, then he has to file a Protest before the BIR. If the taxpayer fails to file a protest, the FAN will become final.

Filing of protest against the assessment

The protest on the assessment may either be a request for reconsideration or a request for reinvestigation. The difference between the two is that in a request for reconsideration, the correctness of the assessment will be reviewed based on existing records only, while in a request for reinvestigation, the assessment will be reviewed based on both existing documents and additional evidence that the taxpayer intends to submit to the BIR.

Within 30 days from receipt of the FAN, the taxpayer must file a protest before the BIR to dispute the FAN. The BIR shall then have 180 days within which to decide on the matter. If the protest is in the nature of a request for reconsideration, the 180-day period shall be reckoned from the day the protest has been filed. However, if the protest is in the nature of a request for reinvestigation, the 180-day period shall be reckoned on the day the last submission of documents or receipts, which the taxpayer is required to submit within 60 days from filing of the protest [Sec. 228, Supra].

Appeal to the Court of Tax Appeals (“CTA”)

If the protest is denied by the BIR, in whole or in part, or the 180-day period has already lapsed without the BIR acting upon the protest, the taxpayer may appeal the denial to the CTA within 30 days form the receipt of the denial, or from the lapse of the 180-day period to decide.

1. After appealing to the CTA, and after rendering an unfavorable decision, taxpayer may file a motion for reconsideration of said decision within 15 days from receipt of the decision of the CTA sitting in division.
2. If the decision is still unfavorable, the taxpayer may appeal to the CTA en banc [See: R.A. No. 9282].

Appeal to the Supreme Court

If the CTA en banc still renders an unfavorable decision, the taxpayer still has the remedy to file a petition for certiorari before the Supreme Court, only on the ground of grave abuse of discretion amounting to lack or excess of jurisdiction. Jurisprudence describes grave abuse of discretion as referring to the capricious or whimsical exercise of judgment as is equivalent to lack of jurisdiction. The abuse of discretion must be patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility [See: G.R. No. 172832].

Action for collection of taxes

Once the assessment has become final, a civil action for collection of taxes may be instituted by the government against the taxpayer before the following courts:

1. Municipal Trial Court – For claims not exceeding Php 300,000.00 (outside Metro Manila), or not exceeding Php 400,000.00 (within Metro Manila)
2. Regional Trial Court – For claims exceeding Php 300,000.00 (outside Metro Manila), or exceeding Php 400,000.00 (within Metro Manila), provided that the amount to be collected is less than Php 1,000,000.00.
3. Court of Tax Appeals – For claims amounting to Php 1,000,000.00 and above.

The decision of the Municipal Trial Court sustaining an undisputed assessment would be appealable to the Regional Trial Court. Such decision of the Regional Trial Court would be appealable to the Court of Tax Appeals, and ultimately to the Supreme Court, in accordance with the provisions of the Rules of Court. Any decision of the CTA upon the tax collection may be appealed to the Supreme Court through a verified petition for review on certiorari.

Tax compromise

In such instances where the assessment has already become final and executory, the taxpayer will be obliged to pay for the amount of taxes as assessed by the BIR. But if the taxpayer has no capacity to pay the assessed amount, the taxpayer still has another remedy that he may avail of, and that is, to enter into a compromise with the BIR.

If the compromise is based on financial incapacity to pay the tax, the taxpayer will be required to settle only as low as 10% of the basic tax due. The taxpayer may also opt to compromise based on doubtful validity of the assessment, but the amount to be settled can be as low as 40% of the basic tax due [See: Sec. 204(A), NIRC].

Given the foregoing, it is therefore clear that there are remedies available for a taxpayer to avail in every stage of the assessment and collection process. This does not mean, however, that these remedies may be abused and misused just to evade payment of correct taxes, or even just to delay the process. There is still no substitute to making the necessary tax payments when payment is indeed due. After all, taxes are the lifeblood of the government, without which, the State cannot fulfill its mandate of promoting the general welfare and well being of the people [See: G.R. No. 159796].

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding taxation and taxpayer’s remedies, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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