Handling BIR letter notices efficiently

by: Arnold P. Supilanas
(Published in BusinessWorld on February 23, 2010)

To harmonize procedures and minimize processing time in handling Letter Notices (LNs), the Bureau of Internal Revenue (BIR) has issued several Revenue Memorandum Orders (RMOs) prescribing the guidelines and procedures in handling LNs generated through the BIR’s Tax Reconciliation System (TRS), Reconciliation of Listing for Enforcement System (RELIEF)-Summary List of Sales and Purchases (SLSP), and the Third Party Matching-Bureau of Customs (TPM-BOC) Data Program.

Separate RMOs cover the  Gguidelines and procedures in handling LNs for each year starting taxable year 2006 are covered by a separate RMO.  In 2007, RMO No. 32-2007 was issued for LNs covering the taxable year 2006; .  RMO No. 17-2009 was also issued for LNs covering the taxable year 2007; and .  Just recently, RMO No. 07-2010 was issued prescribing the guidelines and procedures in handling LNs coveringfor the taxable year 2008.

To further enhance the guidelines and proceduresT, the BIR has introduced modifications to the originally issued RMO No. 32-2007 to further enhance the guidelines and procedures. 

Among others, the following modifications are implemented in RMO No. 17-2009 and carried over in the recently issued RMO No. 07-2010:

1.  Unlike the previously issued RMO No. 32-2007 wherein the 2006 LNs cannot be converted to a Letter of Authority (LA) or a Tax Verification Notice (TVN), RMO Nos. 17-2009 and RMO No. 07-2010 allow the consolidation of the 2007 and 2008 LNs with the previously issued LA upon written request for consolidation, subject to approval by the Deputy Commissioner- – Operations Group.  The Third Party Information (TPI) reflected in the said LNs shall be properly utilized and the extent of its utilization shall be included in the report of investigation by the concerned Revenue Officer (RO).

2.  RMO Nos. 17-2009 and 07-2010 also provide that TRS-LNs shall be consolidated with RELIEF-LNs and shall be handled by the same investigating office (the RO who shall to handle TRS-LN shall be the same RO to handle RELIEF-LN) wherein the report of investigation/verification shall be forwarded to the Office of the Deputy Commissioner-Operations Group for proper disposition.  RMO No. 32-2007 did not provide the same.

3. RMO Nos. 17-2009 and 07-2010, unlike RMO No. 32-2007, further provide that in the event the case with LA is already terminated before LN is issued, the Assessment Division (AD)/Reviewing Office – Large Taxpayer Service (RO-LTS) is required to ascertain whether the discrepancies reflected in the LNs were considered in the report of investigation. 

If they were not considered, the AD/RO-LTS shall forward the LA docket together with the LN/s to: the Office of the Deputy Commissioner of Internal Revenue-Operations Group (ODCIR-OG) thru the Office of the Regional Director (ORD) for non-large taxpayers; or to the Commissioner of Internal Revenue (CIR) thru the Associate Commissioner of Internal Revenue (ACIR)-LTS for large taxpayers for appropriate action. 
If the discrepancies were considered, the same shall be forwarded to the ORD/ACIR-LTS and recommend for the cancellation of the said LN/s to the ODCIR-OG/ACIR-LTS together with LA docket.  ODCIR-OG/ACIR-LTS shall refer the same to AITEID for validation and/or cancellation.

While this development would could somehow lessens the taxpayer’s time that will be spent in dealing with the BIR, this may also allow the tax authority to relate, associate and match information gathered in the LN and the LA especially with the mandate of fully utilizing the Third Party IInformation.

Hence, the most prudent thing to do is to ensure compliance with the existing tax rules and regulations including the substantiation and documentary requirements.

Since tax rules and regulations are changing very often, taxpayers may seek assistance from tax experts in evaluating their tax compliance and/or attending forums/seminar to enhance the ir knowledge in taxation.
Taxpayers must also be aware of these other equally important guidelines and procedures in handling LNs, as follows:

1. Taxpayers who decides to settle his liabilities within 30 days from receipt of the LN shall be entitled to certain privileges such as the abatement of interest and penalties.

2. Installment payment is allowed in cases where the tax liabilities exceeds five hundred thousand pesos (P500,000.00).

3. Payment of deficiency tax (es) under the LN shall be credited against any assessment that may be made by the investigating office pursuant to an LA/TVN provided the discrepancies disclosed by said audit/investigation are of the same nature as the discrepancies reflected in the LN.

4. A Preliminary Assessment Notice (PAN)/Final Assessment Notice (FAN) shall be issued If a taxpayer fails to response to the LN, the fFollow-up lLetter, or the Notice of Informal Conference within the prescribed period, or fails to settle his tax liabilities, a Preliminary Assessment Notice (PAN)/Final Assessment Notice (FAN) shall be issued. The taxpayer, however, may file a protest against the PAN/FAN and request for a reinvestigation or reconsideration. If the protest is valid, it shall be acted upon by the revenue officer. Otherwise, the taxpayer shall be informed in writing that his/her/its request has been denied and the case shall be referred to the appropriate BIR office to effect collection of the deficiency taxes.

5. LNs issued to taxpayers are considered notices of audit/investigation and therefore  insofar asbar any  the amendment toof any returns covering the period referred to in the LN.  Accordingly, a taxpayer is disqualified from amending his/her/its returns covering the period referred to in the LN upon issuance of the same.
Awareness of the manner by which the BIR handles LNs and knowledge of your rights as taxpayers are very important in handling the LNs efficiently and successfully.