Last week, I received a common inquiry from several clients – “Has the suspension of the tax audit been lifted?”. The reason is that these clients received assessment notices from the Bureau of Internal Revenue (BIR) such as the Notice of Discrepancy (NOD) and Preliminary Assessment Notice (PAN) that were personally served at their respective offices unexpectedly.
My clients were referring to the Revenue Memorandum Circular (RMC) No. 77-2022 issued by the former BIR Commissioner on May 30, 2022 with respect to the suspension of tax audit investigations. Per the RMC, the Bureau suspended all field and other field operations of the BIR covered by Letters of Authority (LOA) and/or Mission Orders (MO) relative to the examination of taxpayers’ books of account and accounting records until further notice.
Just recently, the new BIR Commissioner issued RMC No. 115-2022 last July 28, 2022, which lifted the suspension of the conduct of Tax Compliance Verification Drive (TCVD) only. Note that the TCVD focuses on the taxpayer’s compliance with its BIR registration and requirements such as the posting of the Certificate of Registration (BIR Form 2303) conspicuously at the business premise, payment of the annual registration fee (BIR Form 0605), the authority to print of receipts or invoices, maintaining the registered books of accounts or the computerized accounting system, and registration of the cash register machine or point-of-sale machine, if applicable.
The confusion of my clients began because of the provisions of this new RMC; hence, they asked if the suspension of the conduct of regular tax audit has been lifted by the new RMC. Are the NOD and PAN that they received after the new RMC was issued valid and enforceable?
If we look into the salient provisions of the earlier RMC, it was stated there that no written orders to audit and/or investigate taxpayers’ internal revenue tax liabilities shall be issued and/or served, except in the following cases:
- Investigation of cases prescribing on or before October 31, 2022;
- Processing and verification of Estate Tax returns, Donor’s Tax returns, Capital Gains Tax returns, and Withholding Tax returns on the sale of real properties or shares of stock, together with the Documentary Stamp Tax returns related thereto;
- Examination and/or verification of internal revenue tax liabilities of taxpayers retiring from business;
- Audit of National Government Agencies, Local Government Units, and Government-Owned and Controlled Corporations, including subsidiaries and affiliates; and
- Other matters/concerns where deadlines have been imposed or under the orders of the Commissioner of Internal Revenue.
The earlier RMC also stated that the service of Assessment Notices, Warrants, and Seizures Notices should still be effected.
Interpreting the above provisions, the BIR can continually serve assessment notices like NOD and PAN to taxpayers despite the suspension of field audit.
Thereby, taxpayers have no other choice but to diligently respond and prioritize once they receive an assessment notice. Note that the BIR assessment is a procedural process whereby both the BIR and taxpayers should strictly abide by the rules. We have heard a lot of horror stories about taxpayers neglecting assessment notices which resulted in full-blown investigations and the assessments becoming final and executory. Such failure by default of the taxpayers had led to serious repercussions involving monetary penalties. Thus, taxpayers must be mindful of the number of days prescribed by the rules in submitting their written reply and supporting documents.
It is also advisable that taxpayers maintain an open line of communication and cooperate with the assigned BIR examiners. This way, any material tax findings and discrepancies could be reconciled and discussed by the taxpayer and be cancelled as early as possible. The best way to close an assessment case is at the earliest stage and not to wait for the final assessment notice. Otherwise, taxpayers should be prepared to elevate the case to court as one of the remedies.
In the past, the suspension of the field audit lasted for a very short period because normally, the purpose of the suspension is for the BIR to conduct an inventory of all issued and outstanding or unresolved LOAs and MOs. With this activity, the BIR could properly monitor the status of assignments given to case officers and take strategies to further expedite the tax investigation.
In a month or so, we would expect that the BIR will lift the suspension as the field audit is indispensable in the audit process to determine the compliance of the taxpayer. It is with fervent hope that once the BIR officially lifts the suspension, we would see improvements in the way the BIR conducts its field audit and investigation such that it would result in reasonable tax findings backed up by factual and legal basis and not the usual table audits that produce unreasonable and bloated assessments.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 09 August 2022