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Handling BIR letter notices

Handling BIR letter notices

by Kristine S. Casa-Siervo

Last October 8, 2007, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (RMO) 32-2007, which prescribes the guidelines and procedures in handling letter notices (LN) generated through the BIR’s Reconciliation of Listing for Enforcement System, more commonly know  as RELIEF, and through the Third Party Matching - Bureau of Customs (TPM-BOC) Data Program.

Through RELIEF and the TPM-BOC Data Program, the BIR is able to detect tax leakages by matching data available in the Bureau’s Integrated Tax System with the information gathered from third party sources.

Though this particular matter, or its corollary issues have been the subject of previous RMOs, this new memorandum order endeavors to further simplify procedures and minimize processing time in dealing with 2006 LNs on income and value-added tax (VAT) liabilities of taxpayers, issued through RELIEF and the TPM-BOC Data Program.

One major difference between previous BIR RMOs and RMO 32-2007 is the fact that 2006 LNs issued through RELIEF and the TPM-BOC Data Program cannot be converted to a Letter of Authority (LA) or a Tax Verification Notice (TVN).

This simply means that if there is an on-going audit/investigation pursuant to a previously issued LA or TVN, the newly issued 2006 LN shall be separately handled and can proceed independently of the LA or TVN, unlike before when the LN shall just form part of the audit docket.

Under this RMO, taxpayers with discrepancy on their sales and/or purchases (domestic or imported) shall be notified of such finding through the issuance of a LN. This LN, together with the Details of Taxpayer’s Customers/Suppliers (DTCS) and/or Details of Importation with Return Information Matching (DIRIM) shall be served to the taxpayer through personal delivery and registered mail with Registered Return Card. If after a period of 15 days the taxpayer fails to respond to the LN, a follow-up letter shall served, to which he must respond to within a period of 15 days.

In case the taxpayer fails to respond to the follow-up letter or to submit the required documents after filing a protest, an issue-based LA to cover specifically “Income and Value-added Taxes Due to Discrepancy Reflected in the LN” shall be issued and served to the taxpayer together with a Notice for Informal Conference.

Subsequently, if the taxpayer fails to settle his tax liabilities, a Preliminary Assessment Notice (PAN)/Final Assessment Notice (FAN) shall be issued.

The taxpayer may file a protest against the PAN/FAN and request for a reinvestigation or reconsideration. If the protest is valid, it shall be acted upon by the revenue officer. Otherwise, the taxpayer shall be informed in writing that his request has been denied and the case shall to be referred to the appropriate BIR office to effect collection of the deficiency taxes.

A taxpayer who decides to settle his liabilities within 30 days from receipt of the LN shall be entitled to certain privileges such as the abatement of interest and penalties. Previously, abatement of penalties and surcharges may be availed up to 60 days.

The BIR likewise gives erring taxpayers the chance to pay their liabilities through installment if the liability exceeds P500,000. This may either be in two or three equal monthly installments depending on the amount.

Other payment scheme may be acceptable but the same should not exceed 6 monthly installments. In case the taxpayer defaults in any of his installment payments, the remaining balance shall become due and demandable immediately without prior notice to the taxpayer.

The upside of the new system is probably a faster resolution of LN-related issues. The downside is that even if the taxpayer settles his income and VAT liabilities under the LN, this will not hinder the BIR from issuing another LA or TVN covering the comprehensive audit of his tax liabilities.

Any payment made by the taxpayer, nonetheless, shall be c redited against any new assessment that may be made as long as the discrepancies disclosed in the audit are of the same nature as the discrepancies reflected in the LN.

Taxpayers are well-advised to be aware of the manner by which the BIR handles LNs in order that they may exercise whatever options are available to them, to safeguard their substantive and remedial rights, and to prevent unwarranted and unreasonable assessments.

(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.)