Unenforceable Tax Assessment

Our courts have been consistently protecting the due process rights of taxpayers. Assessments have been declared void in many cases for failure by the BIR to observe taxpayer’s rights. For instance, if the revenue officer who conducted the tax examination is not cloth with a letter of authority (LOA), the tax assessment is considered void. Also, it is now well settled that tax examiners have the duty to give their reasons for denying the protest to a final assessment notice. Failure to do so would make a tax assessment void. But in one decision, the Supreme Court curiously hinted that a tax assessment although not void, may still be considered unenforceable. How can this happen?

BIR issuance mandates that any reassignment/transfer of cases to another revenue officer, and revalidation of LOAs which have already expired, shall require the issuance of a new LOA, with the corresponding notation, including the previous LOA number and date of issue of said LOA.

Also, a revenue officer is allowed only one hundred twenty (120) days from the date of receipt of an LOA by the taxpayer to conduct the audit and submit the required report of investigation. If the revenue officer is unable to submit his final report of investigation within the 120-day period, he must then submit a progress report to his head of office and surrender the LOA for revalidation.

Revalidation means making something legal or valid again. In other words, something has already died and is being given life anew.

The requirement that the revenue officer surrender the LOA for revalidation should be read together with the issuance that prescribes that revalidation of LOAs shall require the issuance of a new LOA. The old LOA should be surrendered because it has lost its validity and a new one should be issued as a substitute.

Clearly, the revenue officer assigned to conduct the audit must submit the report of investigation within 120 days. If the revenue officer cannot submit the report of investigation, he or she must submit a progress report and surrender the LOA for revalidation. Non-observance of this process would necessarily mean that the examination conducted by the revenue officer is without authority.

The Supreme Court has clarified that the failure to comply with the 120-day rule does not void an LOA. The expiration of the 120-day period merely renders an LOA unenforceable. The revenue officer must first seek ratification of his expired authority to audit to be able to validly continue investigation beyond the first 120 days. According to the Supreme Court, although the revenue officer is unable to conduct further investigation his/her authority during the first 120 days or the procedures he/she had already performed within that period is valid. He/she may instead render a report based on the results of his/her initial investigation from which an assessment may be legitimately issued. What happens if no progress report is submitted by the revenue officer from which an assessment may be derived?

If this happens, the assessment will have no leg to stand on. Also, if there is no revalidated LOA, any examination of taxpayer’s books of account that is beyond the 120-day period is considered unenforceable. Thus, any assessment resulting from such examination is also necessarily unenforceable. Consequently, the BIR cannot enforce collection based on an unenforceable assessment. But there is a catch.

The Supreme Court requires taxpayers to invoke the right not to be examined as soon as possible. Taxpayers must convey to the revenue officers that they are not allowing them to continue their examination beyond the 120-day period unless they can produce a revalidated LOA. It is best that such objection is in writing because it is the best evidence when push comes to shove. If a taxpayer remains silent and just allow revenue officers to continue their examination despite an expired LOA, estoppel will kick in. An assessment that is supposed to be unenforceable will be allowed to stand.

It is not enough defense that the BIR violated taxpayer’s due process rights for a tax assessment to be declared void or unenforceable. It is also important that taxpayers know when and how to invoke these rights.
But you cannot invoke what you do not know. So, as far as taxpayer’s rights is concerned, ignorance is not bliss.

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