Filing and paying tax returns at the right time will make you free from stress. However, receiving notice of Discrepancy from the Bureau of Internal Revenue (BIR) could be an additional burden to you as a taxpayer. What will you do if you receive such a notification? Should you ignore it?
If you’re one of those who received notice from your RDO or BIR, you might be alert to seek advice on how to respond. Furthermore, if you’ve any suggestions or experienced your response to this notice, feel free to give comments below. However, if it is your first time encountering this dilemma, make sure to know why a particular taxpayer received a notice of Discrepancy.
Causes of Notice of Discrepancy
There are many causes why you will receive notice from the government. One of these is the Discrepancy between the actual amount to be paid and the taxpayer’s substantial amount.
These discrepancies might be due to the following reasons:
- Sales are understated. There might be some unrecorded sales, which the government identified.
- Unqualified Business expenses. Some business expenses don’t qualify as a deduction.
- Additional fees.
Notice of Discrepancy is Not Necessary
According to Section 228 of the Tax Code, a notice of Discrepancy is not necessary as amended. Still, instead, a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) is issued in any of the following cases:
- 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
- A discrepancy between the tax withheld and the amount remitted by the withholding agent; or
- 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
- Excise tax due on excisable articles is still unpaid; or
- An item locally purchased or imported by an exempt person, such as but not limited to vehicles, capital equipment, machinery, and spare parts, has been sold, traded, or transferred to non-exempt persons.
Due Process Requirement in the issuance of a Deficiency Tax Assessment 2020
The government issued Revenue Regulations (RR) No. 22-2020 dated September 15, 2020, to import the public’s terminology as previously published regulations. This regulation is to provide a faster assessment process in settling the discrepancies.
According to this latest regulation issued, the following procedures are as follows:
- Once you received the notice of Discrepancy issued by the RDO or Revenue, you must respond to this notice by explaining the reasons why their findings are not valid.
- The period of explaining the reasons to disagree with the information is what the BIR called “Discussion of Discrepancy” in this discussion. You will be allowed to clarify the issue raised by the BIR within 30 days from receipts of notice of Discrepancy.
- During these periods, you need to submit the necessary documents to support the explanations or arguments.
- “if the taxpayer disagrees with the discrepancy/discrepancies detected during the audit/investigation, the taxpayer must present an explanation and provide documents to support his explanation. You must submit the documents during the discussion. Should the taxpayer need more time to present the documents, he may submit such documents after the discussion. The taxpayer must submit all necessary documents that support his explanation within thirty (30) days after receipt of the Notice of Discrepancy”, BIR said.
- “if after being allowed to present his side through the Discussion of Discrepancy, it is still found that the taxpayer is still liable for deficiency tax or taxes and the taxpayer does not address the discrepancy through the payment of the deficiency taxes or the taxpayer does not agree with the findings, the investigating officer, shall endorse the case to the reviewing office and approving official in the National Office or the Revenue Regional Office, for issuance of a deficiency tax assessment in the form of a Preliminary Assessment Notice within ten (10) days from the conclusion of the Discussion” BIR said.
Effect of Failure to Address the Discrepancy
Suppose you ignore the notice of Discrepancy issued by the government within 30 days given by the BIR. In that case, it shall be meted with a penalty as provided by existing laws, rules, and regulations. Also, the government will issue actions:
- The imposition of the administrative sanction of suspension and temporary closure of business establishments.
- Issuance and enforcement of the Subpoena Duces Tecum (SDT) in strict compliance with procedures enunciated in RMO No. 88-2010 and other applicable pertinent revenue issuances.
- Distribution of electronic Letter of Authority (ELA) under certain situations or Preliminary Assessment Notice (PAN)/Final Assessment Notice (FAN).
Remedy for Failure to Take Action on Notice
If you failed to respond immediately within the allotted days to the Bureau of Internal Revenue, it’s not yet the end. Here are the steps that you can take during this process.
Preliminary Assessment Notice (PAN)
If the government still finds enough evidence that a particular taxpayer had any tax or tax deficiency. This letter is a proposed assessment within ten (10) days after the end of the discussion.
You must respond within fifteen (15) days from the Preliminary Assessment Notice date during this stage. Failure to respond within the response will be considered final. Once the findings are considered final, a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) is issued.
If you respond to disagreements within those days, you will issue an FLD/FAN 15 days from the date of your filings or submission of supporting documents.
Formal Letter of Demand and Final Assessment Notice (FLD/FAN)
A letter from the Commissioner or his duly authorized representative demands payment from the taxpayer’s deficiency taxes.
Upon receiving this letter, you must respond or issue a protest on the government’s assessment within thirty (30) days from the time you receive the message. You may file a written request for reconsideration or reinvestigation.
You might be wondering as to the difference between these two terms. When you say a request for consideration, it means that you’re requesting to make a reconsideration of the existing evidence. You can do it by questioning some facts or of law. However, a request for reinvestigation is also a request for reconsideration, not on the existing evidence but on the newly discovered or additional evidence you’ve presented or submitted.
When submitting a written request, here is some of the following information present in your request.
- Nature of protest, whether reconsideration or reinvestigation, specifying newly discovered or additional evidence he intends to present if it is a request for reinvestigation,
- Date of the assessment notice, and
- Applicable law, rules, and regulations, or jurisprudence on which his protest, otherwise, his complaint shall be considered void and without force and effect.
Suppose there are many issues involved in the FLD/FAN, but you only dispute or protest against the validity of some of the issues raised. In that case, the assessment attributable to the undisputed issue or issues shall become final, and you’re liable to pay the deficiency tax.
For reinvestigation requests, you must submit all relevant supporting documents to support your protest within sixty (60) days from the date of filing the letter of complaint. The sixty (60) days allotted are not applicable for your request for reconsideration.
Moreover, if you fail to respond within thirty (30) days from the date you received the FLD/FAN, it becomes final and executory. Indeed, you’re no longer allowed to write any request for reconsideration or reinvestigation.
Appel to the Court of Tax Appeals (CTA)
Assuming you’ve submitted your protest but still denied in whole or in part by the Commissioner’s duly authorized representative, you can elevate your appeal to the Court of Tax Appeals or the Commissioner within thirty (30) days from the date of receipt of the decision received. Once you advance your appeal to the Commissioner, there is no request for reinvestigation in the administrative appeal.
Suppose your protest is not acted upon by the Commissioner’s duly authorized representative within one hundred eighty (180) days from the date of filing of the complaint in case of a. In that case, you may do appeal or wait for the final decision. You may appeal to the CTA within thirty (30) days after the expiration of the 180 days or wait for the final decision of the Commissioner’s duly authorized representative on the disputed assessment.
If the protest or administrative appeal is not acted upon by the Commissioner within one hundred eighty (180) days counted from the date of filing your complaint, you may:
- appeal to the CTA within thirty (30) days from after the expiration of the one hundred eighty (180)-day period;
- Await the Commissioner’s final decision on the disputed assessment and appeal such final decision to the CTA within thirty (30) days after receiving a copy of such decision.
In the case of inaction on protested assessment, your option is either:
- file a petition for review with the CTA within 30 days after the expiration of the 180 days; or
- Await the Commissioner’s final decision or his duly five authorized representatives on the disputed assessment and appeal such final decision to the CTA within 30 days after receiving a copy of such determination, are mutually exclusive, and the resort to one bars the application of the other.
Final Decision on a Disputed Assessment (FDDA)
It is the final decision of the Commissioner or his duly authorized representative to the taxpayer’s Discrepancy. The final judgment includes the facts, applicable law, rules, and regulations, or any jurisprudence.
Note: Delivery of Notices is any of this mode of services:
- Personal delivery to the registered address.
- If the taxpayer is not physically present, you will leave notices at the taxpayer’s registered address. However, if there is no other person present at the registered address, you will give the barangay officials information.
Disclaimer: These are only the legal process of responding to any notice of Discrepancy received from the government. Make sure to seek advice from the tax advisor or expert to assist you.