Bureau of Internal Revenue (BIR) audits have been proven to be tedious and rigorous tasks for taxpayers. From the moment the Letter of Authority (LOA) is received, with the back and forth between the submission of documents and the presentation of reconciliations, up to the final settlement of the issues. The best-case scenario is that the case will be closed at the earliest stage, upon issuance of a Notice of Discrepancy (NOD) meaning, the taxpayer will pay the alleged deficiencies upon receipt of the NOD. However, often, the case will go through the entire assessment process, wherein the Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN) and the Final Demand on Disputed Assessment (FDDA) are issued against the taxpayer. The longer the process, the more costs are incurred and the more efforts are required to resolve the issues.

Going through the entire assessment process is tedious enough for both the taxpayer and the BIR examiners, but once a Warrant of Distraint and/or Levy is issued against the taxpayer, this is a nightmare on another level. Below are some rules regarding the due process of the issuance of a deficiency tax assessment and the issuance of a Warrant of Distraint and/or Levy (WDL).

Due process in the issuance of a deficiency tax assessment

Revenue Regulations (RR) 12-99, as last amended by RR 22-2020, provides the due process requirements for issuance of deficiency tax assessment (Notice of Informal Conference or Notice of Discrepancy as it is being currently called, Preliminary Assessment Notice, Formal Letter of Demand, and Final Decision on Disputed Assessment). To highlight, the regulations provide that when the Final Decision on Disputed Assessment (FDDA) has been issued by the authorized representative of the Commissioner of Internal Revenue (CIR), the taxpayer is given the opportunity to file within thirty (30) days a Motion for Reconsideration (MR) with the CIR. It is reiterated in the case of Light Rail Transit vs. BIR (G.R. No. 231238, June 20, 2022) that if the taxpayer elevates his protest to the CIR, the CIR's duly authorized representative's decision shall not be considered final, executory and demandable, in which case the protest shall be decided by the CIR.

Pursuant to the lifeblood doctrine, numerous court cases (e.g., CTA EB No. 1837 and G.R. No. 197945) have allowed tax authorities enough discretion to avail themselves of the most efficient way to collect taxes with as little interference as possible. These cases held that the BIR’s power to collect taxes must yield to the fundamental rule that no person shall be deprived of his property without due process of law. The rule is that taxes must be collected reasonably and in accordance with the prescribed procedure.

Issuance of Warrant of Distraint and/or Levy

Sections 205 and 207 of the National Internal Revenue Code (NIRC) as amended provide and summarize the remedies for the collection of delinquent taxes, which include (a) distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property, and by levy upon real property and interest in rights to real property (b) civil or criminal action.

Revenue Memorandum Order (RMO) No. 39-2007 prescribes that upon issuance by the Commissioner of Internal Revenue (CIR) or Regional Director of the final decision on the disputed assessment (FDDA) against the taxpayer or upon issuance by the Court of Tax Appeals (CTA) in Division or En Banc of its decision upholding the assessment, Warrants of Distraint and Garnishment and/or Levy shall forthwith be immediately issued and served. 

The said memorandum covers the following:

  1. Disputed assessments that are finally decided by the CIR or Regional Director, as the case may be, against the taxpayer.
  2. Assessments upheld by the CTA in Division whether or not appealed to the CTA En Banc or upheld by the CTA En Banc whether or not appealed to the Supreme Court.

In view of the above, it can be inferred that WDL should only be issued once the CIR, or the Regional Director has issued a decision, and that decision has become final and executory. Thus, pending any decision on the duly filed MR to the CIR, no WDL should be issued against the taxpayer.

While the rules are in place, we have had multiple experiences where WDLs are issued against taxpayers while the decision on their MR is pending before the CIR. These instances were prevalent despite the directives under Revenue Memorandum Circular (RMC) 39-2013 to create a database for all protests to FAN and FDDA received by the BIR. The expectation is that since the BIR is aware that the MR has been filed, taxpayers can rest knowing that they are waiting for the CIR’s decision on the MR. Thus, taxpayers are often surprised to receive WDLs considering they have a pending MR and are compelled to litigate before the Court of Tax Appeals to question the validity of the WDL.

To address this gap, the BIR issued RMC 43-2023 which reiterated that taxpayers must submit/file their protests, request for reinvestigation or reconsideration, and other similar correspondences against the Formal Letter of Demand/Final Assessment Notice (FLD/FAN) with the office of the duly authorized representative of the Commissioner of Internal Revenue who issued the FLD /FAN. In addition, in cases of filing an appeal against the FDDA, the taxpayer is mandated to furnish a copy of the said appeal to the chief of the Assessment Division for regional cases, or the concerned Head Revenue Executive Assistant (HREA), while for taxpayers under the jurisdiction of the Large Taxpayers Service or investigated by the National Investigation Division under the enforcement and Advocacy Service, within five (5) days from the date of filing with Office of the Commissioner or the Court of Tax Appeals (CTA).

We give credit to the BIR for establishing a realistic way of resolving the issue, as the above offices will be timely and formally notified of the pending MR before the CIR instead of solely relying on the BIR’s database. Taxpayers are more than willing to do this additional legwork to ensure that no WDL shall be issued against them instead of shedding additional unnecessary costs for litigation just to question the validity of such a WDL.

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 11 July 2023