Understanding tax investigations

(Conclusion)

As the taxpayer, what can I do?

For his part, the taxpayer under tax investigation while being mindful of his rights and privileges may do well by cooperating in the tax investigation process. After all, the sooner the tax audit is concluded, the earlier he may start addressing the findings that may be presented as a result of the tax audit.

When an LOA is served, it may be wise to examine the LOA being served if it has all the information cited above. If satisfied, the taxpayer may then receive the LOA by affixing his name on the space provided for that purpose and put the date of receipt.

After the tax investigation and the taxpayer does not agree with the assessment prepared as a result thereof, he can contest it by filing a Letter of Protest taking into account each item in the Details of Discrepancies and citing his reasons, in detail, therefore.

A protest is considered valid if it satisfies the following requirements:

1. It is made in writing and addressed to the Commissioner of Internal Revenue;

2. It must contain the following information:

• Name of the taxpayer and address for the immediate past three years

• Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence if it is a request for reinvestigation

• Taxable periods covered

• Assessment number

• Date of receipt of notice of assessment or letter of demand

• Itemized statement of the findings to which taxpayer agrees as a basis for computing the tax due, which amount should be paid immediately upon the filing of the protest.  For this purpose, the protest shall not be deemed validly filed unless payment for the agreed portion of the tax is paid first

• Itemized schedule of the adjustments with which the taxpayer does not agree and the reasons therefore.

3. To be valid, the taxpayer shall state the facts, applicable law, rules and regulations or jurisprudence on which his protest is based.

The protest letter should be filed within 30 days from the receipt of the Notice of Assessment and Formal Letter of Demand.

After the protest letter submitted by the taxpayer is accepted, he shall submit the required documents in support of his protest within 60 days from the date of actual filing of the letter of protest, else, the assessment shall become final, executory and demandable.

If the protest is denied (wholly or partly) or not acted upon within 180 days from the submission of the last documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within 30 days from receipt of the decision or from the lapse of the 180-day period; otherwise, the decision shall become final, executory and demandable.

In the final analysis, the best defense a taxpayer can put up against a tax investigation is honest to goodness tax compliance on his part. A taxpayer vigilantly meeting his tax obligations and keeping himself abreast of the requirements of the BIR has in fact adopted a preemptive position for any assessment that may result from any future tax investigation.  For those who have not done so, it is never too late to start complying. A tax compliance review is a recommended diagnostic tool to determine methodically the degree of compliance or lack thereof and provides a sensible place to start a good housekeeping.

In the Holy Week just passed, it was a good opportunity for soul searching and coming to terms with our own mortality. Again, we were reminded that death, as certain as taxes, will visit at the appointed hour. But unlike a tax investigation which is forewarned by the service of an LOA, death comes like a thief in the night. In the presence of the ultimate Judge, we do not have the prerogative to file a protest to His divine judgment. So whether we agree with it or not, be it eternal bliss or eternal damnation is based entirely on the merits of our lives in the here and now. For both certainties in life then, death and taxes or taxes and death, in whatever order these may come, the question remains to be, “Are you compliant?”

(Alma L. Barcelo is a director for Tax and Corporate Services of Manabat Sanagustin & Co., CPAs, a member firm of KPMG network of independent member firm affiliated with KPMG International, a Swiss Cooperative. This article is for general information only and is not intended to be, nor it is a substitute for, informed professional advice. While due care was exercised to ensure the quality of the information contained in this article, readers should carefully evaluate its accuracy, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances. For comments or inquiries, please e-mail [email protected] or [email protected]).