BIR Ruling [DA-403-06]

June 28, 2006 BIR RULING [DA-403-06] Rev. Regs. No. 8-2004 Office of the Sangguniang Bayan Batac, Ilocos Norte Attention: Ms. Gladys R. Lagura SB Secretary Gentlemen : This refers to the Sangguniang Bayan Resolution No. 129 series of 2005 of the Sangguniang Bayan of Batac, Ilocos Norte requesting this Office to benevolently work for the grant of amnesty from the payment of penalties on the failure of operators of tricycles for hire to register with the Bureau of Internal Revenue. In reply, please be informed that at present, Congress has not passed any law granting tax amnesty. However, Section 204(A) of the Tax Code of 1997 grants the Commissioner of Internal Revenue the power to compromise the payment of any internal revenue tax., viz: "SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner may (A) Compromise the payment of any internal revenue tax, when: (1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. The compromise settlement of any tax liability shall be subject to the following minimum amounts: For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax . . ." Pursuant to Revenue Regulations No. 8-2004, the offer to compromise based on financial incapacity may be accepted upon showing that: IcCATD "(a) The corporation ceased operation or is already dissolved. Provided, that tax liabilities corresponding to the Subscription Receivable or Assets distributed/distributable to the stockholders representing return of capital at the time of cessation of operation or dissolution of business shall not be considered for compromise; or (b) The taxpayer, as reflected in its latest Balance Sheet supposed to be filed with the Bureau of Internal Revenue, is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least 50%, provided that amounts payable or due to stockholders other than business-related transactions which are properly includible in the regular "accounts payable" are by fiction of law considered as part of capital and not liability, and provided further that the taxpayer has not sufficient liquid asset to satisfy the tax liability; or (c) The taxpayer is suffering from a net worth deficit (total liabilities exceed total assets) computed by deducting total liabilities (net of deferred credits and amounts payable to stockholders/owners reflected as liabilities, except business related transactions) from total assets (net of prepaid expenses, deferred charges, pre-operating expenses, as well as appraisal increases in fixed assets), taken from the latest audited financial statements, provided that in the case of an individual taxpayer, he has no other leviable properties under the law other than his family home; or (d) The taxpayer is a compensation income earner with no other source of income and the family's gross monthly compensation income does not exceed the levels of compensation income provided for under Section 4.1.1 of these Regulations and it appears that the taxpayer possesses no other leviable or distrainable assets. (e) The taxpayer has been declared by any competent tribunal/authority/body/government agency as bankrupt or insolvent." Nevertheless, we regret to inform you that the tricycle operators are not qualified to avail of the above remedy since a penalty for violation of internal revenue tax laws is not among those which may be subject to compromise settlement under the above law and Regulations. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service