Surcharge, Interest, and Compromise Penalty on Amended Returns

March 15, 2018 BIR MEMORANDUM NO. 016-2018 TO : The Deputy Commissioner Operations Group SUBJECT : Surcharge, Interest, and Compromise Penalty on Amended Returns This refers to the Reference Slip dated August 17, 2017, requesting for the resolution of issues on surcharge, interest, and compromise penalty on amended returns. Background: On May 26, 2017, Acct Five sent an e-mail to the Presidential Complaint Center, which was referred to the Office of the Deputy Commissioner-Operations Group, under PCC Code No. GE-FCG-06-14-2017-020. In the said e-mail, Acct Five mentioned about the inconsistencies in the imposition of penalties and interest for filing of an amended tax return. There are Revenue District Offices (RDOs) that impose surcharge, interest and compromise penalty, while other RDOs impose only interest. Hence, this request. In reply, please be informed that Sections 248 and 249 (A) of the National Internal Revenue Code of 1997, as amended, states that: HTcADC "SEC. 248. Civil Penalties. (A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases: (1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or (2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or (3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or (4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations , or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment. (B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case, any payment has been made on the basis of such return before the discovery of the falsity or fraud: x x x" "SEC. 249. Interest. (A) In General. There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid. " (Emphasis and underscoring supplied) Under the above quoted provisions, it is clear that interest of twenty percent (20%) and penalty equivalent to twenty-five percent (25%) of the amount due shall be imposed on failure to file any return and pay the tax due thereon on the date prescribed or failure to pay the full or part of the amount of tax shown on any return as required under the provisions of the National Internal Revenue Code or rules and regulations. Thus, in an amendment of return where an additional tax is due per amended return, 20% interest and 25% penalty shall be imposed based on the additional tax to be paid per amended return. With regard to the imposition of compromise penalties, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (RMO) No. 7-2015, (The Revised Consolidated Schedule of Compromise Penalties for Violations of the National Internal Revenue Code) to update the Schedule of Compromise Penalties specified in RMO No. 19-2007. Compromise penalties are only amounts suggested by the BIR in settlement of criminal liability for violations committed by taxpayers, the payment of which is consensual in nature, and may not therefore be imposed or exacted on the taxpayer. Thus, in the event that a taxpayer refuses to pay the suggested compromise penalty, the violation shall be referred to the appropriate office for criminal action. Please be guided accordingly. (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue