Not without recourse

"I have been a registered business taxpayer in one of the Revenue District Offices in Quezon City for three years now. I have been complying with all the requirements of the Bureau of Internal Revenue by maintaining a complete set of registered accounting books, religiously recording all my transactions in the books, maintaining all my business receipts and invoices, and filing all the required tax returns on a monthly, quarterly, and yearly basis as well as paying all my tax obligations on due dates.

"My problem with the BIR arose when my tax returns on my second year of operation was examined. As required, I submitted all the requested documents and invoices. After the examination, I am being assessed for still unpaid taxes. How do I go about contesting this assessment?"

I can empathize with you! For a taxpayer who really feels that he has been complying religiously with his required reports to the Bureau of Internal Revenue, there is nothing more scary than getting a letter from the BIR informing the taxpayer that his books and other pertinent documents for a given taxable year are going to be opened for examination

The magnitude of anxiety associated with being slapped a deficiency assessment is larger than any failure mark that anybody can get from an ordinary examination due to the threat of civil and criminal liability. However, do not fret. There are available remedies for you.

If a taxpayer wishes to contest the findings of the BIR, he or she should file a written administrative protest, stating in detail his reasons for contesting the formal assessment, including the factual and legal bases for the protest. Otherwise, the protest will be considered void.

More importantly, the protest must be filed with the BIR within 30 days from receipt of the formal assessment notice. After the 30-day period has lapsed, the assessment is considered final, executory and demandable, and the taxpayer no longer has the right to elevate the matter before the Court of Tax Appeals.

So as not to be prevented from validly contesting an assessment, remember that what should be protested is the formal assessment, not the preliminary assessment (although you may protest both). Usually, the formal assessment notice is accompanied by a formal letter of demand.

The Court of Tax Appeals has found occasion to rule that even if you have protested the preliminary assessment, if you fail to protest the formal assessment within the 30-day period, the said assessment shall still become final, executory and demandable. The Court of Tax Appeals has dismissed cases by taxpayers and have made them liable for millions of pesos simply because they failed to protest the formal assessment.

After filing the protest, a taxpayer is then given a period of 60 days within which to submit supporting documents to substantiate his protest. From this point, the BIR is given 180 days from date of submission by the taxpayer of the required documents within which to decide the case. Thus, two events may happen–either the BIR may finally decide the case or it may fail to act on the protest.

On the one hand, if the BIR decides the case with finality within the 180-day period, the taxpayer may appeal to the Court of Tax Appeals within 30 days from receipt of the final decision if he is not satisfied with the BIR’s decision.

On the other hand, where there is inaction on the appeal, the taxpayer may either appeal to the Court of Tax Appeals within 30 days from the lapse of the said 180-day period.

In several of its decisions, the Court of Tax Appeals has ruled that, in cases of inaction, the taxpayer has an option to either (a) appeal to the Court of Tax Appeals within 30 days from the lapse of the 180-day period, or (b) wait for a final decision on the part of the BIR before filing an appeal with the Court of Tax Appeals within 30 days from receipt of the said final decision.

Finally, by virtue of the recent expanded jurisdiction of the Court of Tax Appeals, a taxpayer adversely affected by a decision of the Court of Tax Appeals en banc should now file his petition with the Supreme Court.

(Raymund S. Gallardo is tax partner of Laya Mananghaya & Co./KPMG. Questions and comments are welcome. Messages to the author can be sent by e-mail at [email protected]).