Validity of a Letter of Assessment after the Lapse of the Period provided under the Law
- ADS
- Apr 17, 2020
- 4 min read
The Supreme Court in a number of cases has repeatedly emphasized the importance of a Letter of Authority in the assessment of a taxpayer’s deficiency. Its absence proves to be crucial in maintaining whether a tax assessment was validly made or not. While it may be true that taxes are what keeps our government function - the lifeblood of our nation, it is equally a basic rule and a reminder to the supposed collectors not to kill the hen that lays the golden egg. In other words, the tax collectors must, in its assessment and collection of the people’s taxes, still observe the principle of due process accorded to every citizen by no less than the Constitution.
As defined by the Court in CIR v. Sony Philippines, Inc. (G.R. No. 178697, 17 November 2010):
"[A] Letter of Authority or LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax."
The exact provision under which a LOA stems its validity is under Section 6 of the National Internal Revenue Code, as amended. Specifically worded, it provides:
“xxx [T]he Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer.”
Corollarily, Section 13 of the Code also provides that:
“xxx [A] Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself.”
However, upon perusal of the cited provisions relative to the issuance of a Letter of Authority, the Tax Code does not provide any specific period during which a Revenue Officer shall perform the duties and obligations mandated under the law.
Thus, the BIR General Audit Procedures and Documentation provides a one hundred and twenty (120) day period given to Revenue Officers from the taxpayer’s date of receipt of a LOA to conduct audit and submit the required report of investigation.
Presently, there remains an issue on whether the lapse of the 120-day period without the Revenue Officer’s completion of the examination of the books of account and other accounting records and submission of the necessary report to the Bureau of Internal Revenue would affect the validity of the entire assessment.
In AFP General Insurance Corporation v. Commissioner of Internal Revenue CTA EB No. 1223, CTA Case No. 8191, 04 January 2016), the Honorable Court of Tax Appeals ruled that the Letter of Authority is valid notwithstanding that the investigation and audit lasted for more than 120 days. The noncompliance with the 120-day period to conduct the audit under the Taxpayer Bill of Rights will not nullify the LOA previously issued. The Court cited Revenue Memorandum Circular (RMC) No. 23-2009, which provides:
“xxx Failure on the part of the RO to request for the revalidation of the LA or the expiration of the “revalidation period” does not nullify the LA nor will it affect or modify the rules on the reglementary period within which an assessment may validly issued. However, this shall be considered as a ground for the imposition of disciplinary action and demerit in the performance rating of the concerned RO if the Regional Director, upon recommendation of the Revenue District Officer, deems it necessary." (Underscoring supplied)
In 2018, two cases were decided by the Court of Tax Appeals En Banc stating that a Letter of Authority is valid only for 120 days, and the revenue officer named therein must conduct an audit and submit a report thereon within the 120-day validity period of the LOA. Failure to submit a report within the said 120-day period will render the assessment void, absent any issuance of a revalidated LOA. The two cases relative to this theory are the GS MTE Grains Corporation vs. Commissioner of Internal Revenue (CTA EB No. 8837, 08 October 2018) and Commissioner of Internal Revenue vs. McDonalds Philippines Corp (CTA EB No. 1535, 04 January 2018).
In 2019, however, The Honorable Court of Tax Appeals, Second Division ruled in the case of First Philippine Electronic Corporation v. Commissioner of Internal Revenue (CTA Case No. 9199, 08 February, 2019) that the 120-day rule is merely imposing an administrative liability on the part of the Revenue Officer without affecting the validity of the Letter of Authority and the audit report. The same argument under the 2016 case of AFP General Insurance Corporation v. CIR was used by the Court in maintaining the validity of the assessment despite the lapse of the said period.
From the foregoing line of cases, the Honorable Supreme Court has yet to make a definitive ruling settling with finality the apparent conflict in the interpretation of the 120-day period. The Honorable Supreme Court in the case of Commissioner of Internal Revenue v. Court of Appeals provides:
“[I]n answering the question of who is subject to tax statutes, it is basic that" in case of doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import." [Underscoring supplied]
Until then, any taxpayer whose case involves the lapse of the 120-day period given to a Revenue Officer to conduct its examination may contest and argue that due process must be accorded to him in the BIR’s assessment and collection process. Otherwise, the taxpayers would always be at the BIR’s mercy; the latter having the upper hand in terms of strength and resources to exhaust all possible remedies to sip and dry the persons from which its revenues are sourced.
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