Clarification on the Preparation of Assessment Notices for Compromise Penalty

December 1, 2021 REVENUE MEMORANDUM CIRCULAR NO. 3-2022 SUBJECT : Clarification on the Preparation of Assessment Notices for Compromise Penalty TO : All Internal Revenue Officials, Employees and Others Concerned This Circular is hereby issued to clarify the proper procedure in the preparation of assessment notices for compromise penalty(ies) pursuant to the provisions under Revenue Memorandum Order No. 7-2015 with regards to compromise penalties and Revenue Regulations No. 12-99, as amended by RR No. 18-2013, in the issuance of a deficiency tax assessment. Compromise penalties are amounts collected in lieu of criminal prosecution for violation committed by the taxpayer, where payment is based on a compromise agreement validly entered into between the taxpayer and the Commissioner of Internal Revenue. Item No. III.4 of the aforesaid RMO laid down that: "Although all amounts of compromise penalties incident to violations shall be itemized in the assessment notice and/or demand letter, the same should not form part of assessment notice that reflects deficiency basic tax, surcharge and interest but should appear in a separate assessment notice/demand letter as the amount suggested to the taxpayer to pay in lieu of criminal prosecution. " (emphasis supplied) Notwithstanding the foregoing, it has been observed that there are times when the assessment notice for deficiency basic tax(es) and civil penalties also includes the compromise penalty(ies). Hence, for uniformity in the preparation of assessment notices, the prescribed formats under RR No. 18-2013 such as Preliminary Assessment Notice (PAN) and Formal Letter of Demand shall now be composed of Part I and Part II, where Part I shall pertain to deficiency basic tax(es) and civil penalties, while Part II shall pertain to the assessed compromise penalty(ies) relative to violations uncovered during the conduct of audit. Part II of the applicable notices are hereby prescribed hereof as Annexes A and B, with sample item of violations to the Tax Code, as amended: Annex A Preliminary Assessment Notice (Part II) Annex B.1 Formal Letter of Demand (Part II) Annex B.2 Final Assessment Notice Likewise, preparation of the BIR Form No. 0605 Payment Form for the settlement/payment of the deficiency basic tax and civil penalties in "Part I" of the assessment notices and BIR Form No. 0605 for compromise penalty(ies) in Part II (Annexes C) shall be done separately. All internal revenue officials and employees are hereby enjoined to be guided accordingly and give this Circular as wide a publicity as possible. This Circular shall take effect immediately. (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue ANNEX A _______________ (Date) PAN-RR-RDO-2018-eLANo.-Series PRELIMINARY ASSESSMENT NOTICE Part II The President ABC CORPORATION Address: TIN: 000-000-000 Sir/Madam: Please be informed that in addition to the deficiency tax(es) assessed as contained in "Part I" of this notice, it was disclosed that the following violations have been committed, which under existing laws, rules and regulations, are subject to applicable penalties as indicated in the matrix below. However, in lieu of instituting criminal action that may lead to the imposition of these penalties upon conviction, this Office is amenable to settle the same extra-judicially, subject to condition that you shall pay the assessed deficiency tax(es) under Part I of this notice and the compromise penalty in the amount of P1,000.00 pursuant to the prescribed penalties under Revenue Memorandum Order No. 7-2015, in relation to Section 7 (C) and 204 (B) of the Tax Code, as amended. Details of which are as follows: Nature of Violation Applicable Penalties Upon Conviction Aside from Administrative Penalties Compromise Penalty (RMO 7-2015) Failure to pay Registration Fee Section 275 Punishable by a fine of not more than One Thousand Pesos (P10,000.00) n or suffer imprisonment of not more than six (6) months P1,000.00 Total P1,000.00 ============= If you are amenable, please pay the above suggested compromise amount within fifteen (15) days from receipt thereof using the BIR Payment Form No. 0605, through the duly Authorized Agent Bank (AAB) in which your company is enrolled and where it pays its internal revenue taxes. Afterwards, submit proof of payment thereof to the Assessment Division, this Region, located at _____________________________________________, ANNEX B.1 _______________ (Date) FLD-RR-RDO-2018-eLANo.-ANSeries FORMAL LETTER OF DEMAND Part II ABC Corporation 123 Makati Avenue Makati City TIN: 000-000-000-000 Sir/Madam: Please be informed that in addition to the deficiency tax(es) assessed as contained in "Part I" of this notice, it was disclosed that the following violations have been committed, which under existing laws, rules and regulations, are subject to applicable penalties as indicated in the matrix below. However, in lieu of instituting criminal action that may lead to the imposition of these penalties upon conviction, this Office is amenable to settle the same extra-judicially, subject to condition that you shall pay the assessed deficiency tax(es) under Part I of this notice and the compromise penalty in the amount of P1,000.00 pursuant to the prescribed penalties under Revenue Memorandum Order No. 7-2015, in relation to Section 7 (C) and 204 (B) of the Tax Code, as amended. Details of which are as follows: Nature of Violation Applicable Penalties Upon Conviction Aside from Administrative Penalties Compromise Penalty (RMO 7-2015) Failure to pay Registration Fee Section 275 Punishable by a fine of not more than One Thousand Pesos (P10,000.00) n or suffer imprisonment of not more than six (6) months P1,000.00 Total P1,000.00 ============= If you are amenable, please pay the above suggested compromise amount on or before November 30, 2021 (as stated in the enclosed assessment notice) using the BIR Payment Form No. 0605, through the duly Authorized Agent Bank (AAB) in which your company is enrolled and where it pays its internal revenue taxes. Afterwards, submit proof of payment thereof to the Assessment Division, This Region, located at ____________________________________, otherwise, this case shall be referred to Legal Division of this Region for institution of criminal action, pursuant to Paragraph III (5) of the aforesaid RMO. Very truly yours, COMMISSIONER OF INTERNAL REVENUE By: ______________________________________ (Signature Over Printed Name of the Regional Director) Acknowledgement of Receipt of Notice: ________________________________ (Signature over Printed Name, with Position/Designation/if Made on Behalf of the Taxpayer Named in the Notice, indicate Relationship to the Taxpayer) ________________________ (Date of Receipt of Notice) Contact details: ________________ ANNEX B.2 BIR Form No. 0401 Final Assessment Notice ANNEX C BIR Form No. 0605 Payment Form n Note from the Publisher: Copied verbatim from the official document. Discrepancy between amount in words and in figures. n Note from the Publisher: Copied verbatim from the official document. Discrepancy between amount in words and in figures.