Salient Features of Revenue Regulations No. 6-2000

October 23, 2000 REVENUE MEMORANDUM CIRCULAR NO. 15-00 SUBJECT : Salient Features of Revenue Regulations No. 6-2000, Implementing Sections 7(c), 204 (A), and 290 of the Tax Code of 1997, and Revenue Memorandum Order No. 42-2000 on Compromise Settlement of Internal Revenue Tax Liabilities TO : All Internal Revenue Officers and Others Concerned To clarify issues relating to the compromise settlement of internal revenue tax liabilities, delinquent accounts or disputed assessments as of June 30, 2000, as implemented by Revenue Regulations No. 6-2000 and Revenue Memorandum Order No. 42-2000, hereunder are basic questions and their corresponding answers. Q-1: What should be shown in order that an offer of compromise settlement can be approved under RMO 42-2000 on the basis of financial incapacity? A-1: In order that an offer for compromise settlement can be approved on the basis of compromise settlement under Revenue Regulations No. 6-2000, as implemented under Revenue Memorandum Order No. 42-2000, the taxpayer-applicant must show that a.) the inability to pay is evident as when the audited Balance Sheet for the taxable year preceding the year when the offer is made shows a capital deficit of at least 5% or the Balance Sheet reflects a negative networth of at least 5%; or b.) The taxpayer is declared by competent court to be bankrupt or insolvent; or c.) The taxpayer has already been dissolved; or d.) The taxpayer is a compensation income earner with no other source of income and the family gross annual income does not exceed P250,000 it appearing that he possesses no other leviable/distrainable assets. Q-2: How is the "capital deficit" or "negative networth " of at least 5% computed to prove financial incapacity? A-2: The capital deficit of 5% as a basis for the determination of the qualification for compromise settlement under financial incapacity is computed based on the total assets appearing on the audited Balance Sheet. Thus, where the total asset appearing on the Balance Sheet for the taxable year preceding the year when the offer is made, i.e. 1999, is P1,000,000.00, the balance of the Capital Account should be at least P50,000.00 (negative P50,000.00), in order that the offer for compromise settlement be approved under the program. In fine, the total liabilities would appear to be 105% of the total assets, or in the foregoing example, a total of P1,050,000.00. Q-3: In Part V, paragraph 9 of RMO No . 42-2000, it is stated that payment of the amount offered shall be made at anytime after filing of the application for compromise using BIR Payment Form No. 0605 at the Authorized Agent Bank . . . of the RDO . . . where the taxpayer is registered. How is this to be reconciled with the procedural requirement of attaching to the application form a copy of the duly validated Payment Form No. 0605 as proof of payment of the compromised amount, under paragraph 6 thereof? ISHaTA A-3: The taxpayers applying for compromise settlement of their delinquent account or disputed assessment as herein defined, may opt to pay their compromise offer before or after the approval of their applications. This shall mean that where the taxpayer makes the payment before application, then the approval of his application shall mean immediate cancellation of his account. However, where the taxpayer awaits for the approval of his compromise offer prior to payment thereof, then the cancellation of his delinquent account/assessment [including the lifting of any warrant of distraint and/or levy, or garnishment, or notice of tax lien] shall be conditioned upon the actual payment of the approved compromise amount. It is optional on the part of the taxpayer to decide whether to pay before or after the filing of the application for compromise but such payment should be made within 30 days from approval of the application. Q-4: For purposes of computing the compromise offer, what is to be used as a basis thereof : the original basic assessed tax, or the adjusted basic assessed tax as a result of the reinvestigation requested by the taxpayer? A-4: It depends. If the adjusted basic assessed tax as a result of the reinvestigation requested by the taxpayer has been re-issued to the taxpayer and to which the taxpayer has agreed in writing as to his conformity with the adjusted assessment, then the taxpayer can no longer request for compromise based on doubtful validity, on account of his conformity thereto. Nonetheless, should the taxpayer still not agree to the adjusted assessment, the same can still be covered by the compromise program under the RMO 42-2000, provided the revised assessment was issued on or before June 30, 2000. CHIScD However, if no adjusted assessment has thence been re-issued to the taxpayer, notwithstanding the reinvestigation conducted by the BIR upon request of the taxpayer, then a compromise settlement thereof shall be based on the original basic assessed tax as stated in the assessment notice. Q.5: How can a taxpayer avail of the compromise program of the BIR under the RMO 42-2000? A-4: To be able to avail of the compromise program under RMO 42-2000, application for availment of the said program must have been filed on or before November 15, 2000 following the procedures outlined in the said RMO. This Circular supplements RMO 42-2000. All revenue personnel are enjoined to give this Circular as wide publicity possible. (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue