Effect of the Issuance and Receipt of Letter Notice to the Taxpayer's Right

July 3, 2003 REVENUE MEMORANDUM CIRCULAR NO. 40-03 SUBJECT : Effect of the Issuance and Receipt of Letter Notice to the Taxpayer's Right to Amend its Tax Returns as Provided under Section 6 of the National Internal Revenue Code TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all internal revenue officers and others concerned, please refer to the attached copy of the memorandum of Deputy Commissioner Jose Mario C. Buag of the Legal and Inspection Group dated June 9, 2003 clarifying the following issue: Whether or not the Letter Notice (LN) being served by the Bureau upon taxpayers who were found to have under-declared their sales or purchases through the Third Party Information Program can be considered a notice of audit or investigation which would in effect disqualify the taxpayers concerned from amending any return which is the subject of such audit or investigation . The Deputy Commissioner for Legal and Inspection Group opines and I quote: "LN being served by the Bureau upon taxpayers who were found to have under-declared their sales or purchases through the Third Party Information Program can be considered a notice of audit or investigation which would in effect disqualify the taxpayers concerned from amending any return which is the subject of such audit or investigation." Please be guided accordingly. aCSTDc (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner Memo-011-2003 06-12-2003 MEMORANDUM FOR : DEPUTY COMMISSIONER ESTELITA C. AGUIRRE Chairperson, VAT-PCC FROM : JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group DATE : June 9, 2003 RE : Unity Printing, Inc. Amendment of Tax returns after Receipt of Letter Notice Amendment of Tax returns after Receipt of Letter Notice This refers to the Memorandum dated March 19, 2003 requesting for an opinion on the following issues: 1. Whether or not Unity Printing, Inc. (Unity for brevity) can still amend its return after the Letter Notice was served upon it. 2. Whether or not the Letter Notices (LN for brevity) being served by the Bureau upon taxpayers who were found to have under-declared their sales or purchases through the Third Party Information Program can be considered a notice of audit or investigation which would in effect disqualify the taxpayers concerned from amending any return which is the subject of such audit or investigation. The facts as stated in the said Memorandum are hereby adopted as follows: Unity is one of those issued an LN on September 16, 2002 under the Voluntary Assessment and Abatement Program (VAAP for brevity). In the LN, Unity was informed that based on the computer check and matching of data conducted by the Bureau, if was found that it has under-declared its purchases for the year 2001. Unity was offered the opportunity to disclosed voluntarily its undeclared sales and purchases, and pay the corresponding deficiency taxes through the VAAP. In that same LN, Unity was required to pay a minimum amount equivalent to 3% and 2% of its under-declaration per LN, for VAT and income taxes for the years covered. Unity did not comply with the LN but rather, amended its VAT and income tax returns for 2001 on September 17, 2002, a day after the LN was issued. It paid a total of P360,895.90 on its amended returns. In the LN, Unity was required to pay a minimum of P3,352,448.94 for VAT and income tax deficiencies. In reply, please be informed that Section 6 of the 1997 Tax Code provides that: "SECTION 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement . (A) Examination of Returns and Determination of Tax Due . After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax : Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative. Any return, statement or declaration filed in any office authorized to receive the same shall not be withdrawn: Provided, That within three (3) years from the date of such filing, the same may be modified, changed, or amended: Provided, further, That no notice for audit or investigation of such return, statement or declaration has, in the meantime, been actually served upon the taxpayer :" (Emphasis supplied.) Accordingly, a taxpayer can amend any return filed in the BIR within three years from such filing provided that no notice for audit or investigation of such return has been actually served upon the taxpayer. However, under Section 4 of Revenue Regulations No. 12-2002, a person found to have under-reported sales/receipts per data generated by RELIEF system shall be sent a Letter Notice detailing the amounts involved and what the Bureau requires from that person. In other words, the issuance of the LN is predicated on the findings through the Reconciliation for Listing and Enforcement (RELIEF for brevity) System together with the Integrated Tax System (ITS for brevity) that generated firm and precise data on sales underdeclarations. Any LN issued therefore presupposes that an audit or investigation had been made, whether the same is partial or otherwise. HCDAcE Thus, in answer to your first query, it is the considered opinion of this Office that Unity can no longer amend its return after the LN was served upon it. As to your second query, we fully subscribe to your view and hereby adopt and reproduce in toto that: ". . . the requirement under the 1997 Tax Code that notice of audit or investigation must first be served to the taxpayer before the latter can lose its right to amend the return within three years after filing is not limited to the issuance of a Letter of Authority (LA). Although the issuance of LA has been the standard procedure before an audit is conducted, it does not preclude the BIR from conducting an investigation without the LA. The computer machine of ITS data against TPI data and verification of tax returns filed by subject taxpayer can be considered per se an investigation of tax returns filed with the Bureau. The audit procedures that can be performed by revenue officers are not limited by law to the examination of the taxpayer's records. Section 5 of the tax code gives the Commissioner the power to obtain information, and to summon, examine and take testimony of persons other than the person whose internal revenue tax liability is subject of audit or investigation." Accordingly, this Office opines that LN being served by the Bureau upon taxpayers who were found to have under-declared their sales or purchases through the Third Party Information Program can be considered a notice of audit or investigation which would in effect disqualify the taxpayers concerned from amending any return which is the subject of such audit or investigation. For your information and guidance.