2. Assessment Process

Power of the Commissioner of Internal Revenue to Make Assessments

An assessment is relevant in the proper pursuit of judicial and extrajudicial remedies to enforce taxpayer liabilities and certain matters that relate to it, such as the imposition of surcharges and interest, and in the application of statutes of limitations and in the establishment of tax liens. (Tupaz v. Benedicto B. Ulep Presiding Judge of RTC Quezon City, G.R. No. 127777, 1 October 1999)¹ Note: The Commissioner, under Sec. 6 of the NIRC², has the power to make assessments.

After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax.

Failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. (NIRC, Sec. 6[A])

How Taxes are Assessed

• Self-Assessment: System under which taxpayer makes a declaration in the return on the basis of his assessment and calculate the tax due. It is usually accompanied by payment.

Pay-as-you-file system: The tax payment system is self-assessing, i.e., “pay-as-you-file system.” Thus, if tax is properly paid, no deficiency assessment is necessary (NIRC, Sec. 56[A][1])⁴

• Deficiency Assessment: - Deficiency assessment is an assessment made by the BIR after the conduct of an investigation or audit when it finds that the tax return filed by the taxpayer contains, for example, an underdeclaration of income, or when the taxpayer does not at all file a tax return.

Distinction in relation to compromise: The Court made a distinction between a self-assessed tax and a BIR-assessed tax in relation to the amounts for compromise, to wit: where tax liabilities are selfassessed, the compromise payment shall be based on the tax return filed by the taxpayer; on the other hand, where the BIR already issued an assessment, the compromise payment shall be computed based on the tax due on the assessment notice. (Philippine National Oil Company v. Court of Appeals, G.R. No. 109976, 26 April 2005)⁵

Kinds of Assessments

• Self-Assessment – one in which the tax is assessed by the taxpayer himself (NIRC, Sec. 56[A][1])⁶

Examples: income tax, capital gains tax, estate tax, donor’s tax, VAT, DST

• Deficiency Assessment – made by tax assessor whereby the correct amount of tax is determined through examination or investigation (NIRC, Sec. 56[B])⁷
• Jeopardy Assessment – a tax assessment made by an authorized Revenue Officer without the benefit of complete or partial audit (R.R. No. 30-2002, Sec. 3[1][a])⁸
• Disputed Assessment – a taxpayer questions a deficiency assessment and asks the BIR to reconsider or cancel the assessment because he believes that he is not liable therefor (St. Stephen's Association v. Collector of Internal Revenue, G.R. No. L-11238, 21 August 1958)⁹. In short, an assessment that has been duly protested by the taxpayer by filing a request for reconsideration or request for reinvestigation pursuant to Sec. 228 of the NIRC¹⁰.

Tax Audit or Investigation – part of the assessment process that may lead to an assessment, not a kind of assessment (NIRC, Sec. 6[A]).

Assessment Process

Assessment Process

• Issuance of a Letter of Authority;
• Notice of Discrepancy under RR No. 22-2020
• Issuance of Preliminary Assessment Notice (PAN);
• Issuance of Formal Letter of Demand / Final Assessment Notice (FAN);
• Administrative Action / Inaction on Disputed Assessment

Sources of information may be from:

Examination of books, papers, records, or other data; subpoena duces tecum; subpoena ad testificandum; tax mapping; examination of returns; best evidence obtainable; inventory-taking, surveillance, and presumptive gross sales and receipts; termination of taxable period; fixing of real property values; inquiry of bank deposits; accreditation and registration of tax agents; prescribe additional procedural or documentary requirements (NIRC, Secs. 5 and 6(B)–(H))¹¹

Authority to Issue Assessment Based on “Best Evidence Obtainable”

CIR may use the best evidence obtainable to issue an assessment under the following circumstances:

• When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations; or
• When there is reason to believe that any such report is false, incomplete or erroneous (NIRC, Sec. 6[B])¹²