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Reconsideration or reinvestigation

Reconsideration or reinvestigation in protesting a FAN

By Alfredo Q. Merto

These days, getting subjected to tax examination is inescapable. In addition to the normal selection and examination of taxpayers through the issuance of letters of authority, the Bureau of Internal Revenue (BIR) is resorting to other programs aimed at discovering leads to deficiency tax payments. These may lead to the issuance of assessment notices.

If you have received a final assessment notice (FAN), what can you or what should you do? If you believe the assessment is erroneous and without basis, protesting the assessment by requesting for a reconsideration or a reinvestigation are two of the options available to you.  This protest should be filed within 30 days from receipt of the FAN.  Otherwise, the assessment shall become final and executory and the taxpayer shall be forever barred from protesting even in the courts.  Thereafter, the BIR has five years to collect such tax assessment from date the FAN is released, or mailed, or sent to the taxpayer.

The other options, of course, are to pay the assessed tax within the time prescribed, if you think they were correctly assessed or apply for compromise or abatement if you have evaluated that you have sufficient grounds to request for these privileges.   Payments beyond the period prescribed in the FAN attract additional interests.

If you’ll decide to protest, would you request for a reconsideration or a reinvestigation?  How do these two types of protest differ and how would they affect the subsequent phases of the assessment and collection proceedings?

The Supreme Court had an opportunity to discuss and differentiate these two options in a decision recently issued (G.R. 167146, Commissioner of Internal Revenue vs. Philippine Global Communication, Incorporated dated October 31, 2006).  It is worthwhile for taxpayers to have a good understanding of these phases in the assessment process and revisit their implications.  In the Supreme Court decision, even the BIR misappreciated the nature of the protest filed.

A request for reconsideration refers to a plea for re-evaluation of the assessment on the basis of existing records without need of additional evidence.  It may involve a question of fact or of the law, or both.  A request for reinvestigation, on the other hand, refers to a plea of re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation, which may involve a question of fact or of the law or both.

The difference between the two types of protest lies in the records or evidence to be examined by internal revenue officers.  A request for reinvestigation entails the presentation of additional or newly discovered evidence, which the revenue examiner failed to consider or which the taxpayer failed to present. Thus, it is proper that an investigation be conducted anew by examining the said documents/evidence to come up with a final assessment. 

This process necessarily takes more time than a mere reconsideration.  Hence, under Sec. 223 of the Tax Code, a request for reinvestigation duly approved by the Commissioner interrupts the running of the five-year prescription period for the BIR to collect.  The running of the period resumes only once the BIR issues its decision on the reinvestigation results.  Henceforth, the five-year period to collect runs from the date of issuance of another final assessment notice, a notice of collection or a warrant of distraint and levy.

An approved request for reconsideration does not have this effect.  Hence, if you only filed a request for reconsideration, whether or not it was approved by BIR, the five-year period to collect is still counted from the date of issuance of the FAN.  The taxpayer should be able to make this differentiation to be able to refuse payment pay if collection is made beyon d this five-year period.

In the case decided, the BIR was remiss in makin g the distinction between a request for reconsideration and reinvestigation.  The taxpayer only requested for reconsideration and refused to submit additional evidence or documents.  Hence, the period to collect has prescribed when, eight years after the issuance of the FAN, the BIR issued a denial of the protest and a reiteration of the assessment.

(The author is a tax manager at Punongbayan & Araullo, member of Grant Thornton International.  For comments and inquiries, please e-mail the author or call 886-5511.)