Administrative Compromise Settlement of Delinquent Accounts

January 4, 1988 REVENUE MEMORANDUM ORDER NO. 01-88 SUBJECT : Administrative Compromise Settlement of Delinquent Accounts TO : All Internal Revenue Officers and Others Concerned This order is issued to afford delinquent taxpayers, natural or juridical, opportunity to settle their delinquent accounts by way of compromise payments, pursuant to the powers vested on me under the provisions of Section 204 (previously Section 246) of the National Internal Revenue Code, as amended. 1. Coverage - Except as provided for in the text next succeeding paragraph, delinquent accounts for all taxable years on assessments, issued on or before December 31, 1986 which has became final and executory, are covered by this order. 2. Disqualification - The following delinquent accounts are not eligible for compromise settlement under this order. 2.1 Capital gains tax; 2.2 Estate or gift tax; 2.3 Unremitted withheld withholding taxes; 2.4 Documentary stamps tax; 2.5 The criminal aspect of tax cases involving fraud already filed in court; 2.6 Tax due per return; 2.7 Second installment on income tax; 2.8 Delinquent accounts with duly approved schedule of payments; 2.9 Unpaid compromise amount or balance thereof, under Executive Order Nos. 41, 44 or other compromise agreements; and 2.10 Delinquent accounts arising out of dishonored check. The above-listed delinquent accounts may be settled by payment of the full basic tax excluding the surcharge and all other increment incident to delinquency. 3. Who May Avail - Any person, natural or juridical, who has a delinquent account or assessments issued on or before December 31, 1986, may settle their accounts through a compromise by paying an amount equal to 50% of the basic tax assessed. 4. Basis for Acceptance of Compromise Offer - The offer to compromise a delinquent account under this order may be accepted when it is shown that: 4.1 reasonable doubt as to the validity of the claim against the taxpayer exists; or 4.2 the financial position of the taxpayer demonstrates a clear inability to pay; and 4.3 the tax or any portion thereof appears to be unjustly and excessively assessed. 5. Definition of Terms - In applying the provisions of this order, the following terms shall have the meaning indicated below: 5.1 "a reasonable doubt as to the validity of the claim against the taxpayer exist," means that there is a doubtful validity either as to law or to facts on the tax assessments or that it is a jeopardy or an arbitrary assessment. a) "Jeopardy" - A jeopardy assessment is one which was made without the benefit of complete or partial audit by an authorized revenue officer who has reason to believe that the assessment and collection of a deficiency income tax will be jeopardized by delay because of the taxpayer's failure to comply with audit and investigation requirements to present his books of accounts and other accounting records to substantiate all or any of the deductions, exemptions or credits claimed in his return. b) "Arbitrary" - An assessment may be considered arbitrary when issued only and primarily to forestall prescription. cd 5.2 "Financial position . . . - - - . . . demonstrates a clear inability to pay the assessed tax." The definitions used in sub-paragraphs 7.4, 7.5, 7.6 of Revenue Memorandum Order No. 39-86 dated November 18, 1987 may be used for the above purpose. 6. Place of Filing and Officials Authorized to Process and Accept Compromise Settlement - All applications for availment of the compromise settlement under this Order shall be filed with, processed and accepted, as follows: 6.1 Persons authorized - (amounts refer to basic tax) a) Revenue District Officer for accounts involving amounts not exceeding P20,000.00; b) Chief, Collection Branch, with the approval of the Regional Director, for accounts over P20,000.00 but not exceeding P100,000.00; c) Assistant Commissioner for Collection, for accounts exceeding P100,000 but not over P300,000; d) Deputy Commissioner who has administrative supervision over the Collection Office for accounts exceeding P300,000.00 but not more than P500,000.00; and e) The Commissioner in all other cases. 6.2 Place of Filing - The offer to avail of the compromise settlement shall be addressed and filed with the offices of the hereinabove designated officials except in the case of the National Office where the request must be filed in the Collection Office only for control and monitoring purposes. 7. Preparation of ATCA - After the offer of compromise has been processed and compromise amount paid, the corresponding authority to change assessment must be prepared as follows: 7.1 By the Revenue District Officer - subject to approval by the Revenue Director for amounts not exceeding P20,000.00; casia 7.2 The Chief, Collection Branch - subject to approval by the Director for amounts exceeding P20,000.00 but not over P100,000; and 7.3 By the Receivable Accounts Division - subject to approval by the duly authorized national officials for accounts over P100,000. 8. Handling of Dockets - 8.1 Collection Office - dockets presently in the possession of the Collection Office or any of its Divisions involving a basic tax of over P20,000.00 but not exceeding P100,000.00 will be transmitted to the National Office who has territorial jurisdiction over the case. 8.2 Regional Office - dockets in the possession of the Regional Office involving a basic tax of P20,000.00 or less shall be transmitted to the Revenue District Office who has territorial jurisdiction over the case. 8.3 Legal Office, Sector Operations Office, and National Assessment Office - dockets with assessments already issued presently in their possession may be acted upon by these Offices for compromise settlement, after which must be forwarded to the proper approving officials, thru the Receivable Accounts Division. 8.4 Accounts Already Compromised - delinquent account dockets involving basic tax of over P20,000.00 but not exceeding P100,000.00, which has already been processed and the compromise amount already paid, must be sent to the Receivable Accounts Division on a weekly basis for proper recording, formal closure of accounts and filing with the Records Division. cd i 8.5 Filing of Dockets - delinquent account dockets involving amounts of not exceeding P20,000.00 which has already been processed and payment already made shall be forwarded to the Chief, Collection Branch of the Region for purposes of recording, formal closure of accounts and filing with the Records Division of the Region. The enclosed BIR Form No. 1254 shall be utilized in the transfer of docket contemplated, above. 9. Separate Control of Dockets Received - A separate logbook shall be maintained by the Regional/District Office to record dockets received by them which originally by amounts does not fall within their jurisdiction. The maintenance of this separate logbook is necessary considering that after the campaign, the cases not settled through compromise, shall be returned to the office of origin for further action. 10. Adjustments in the General Control Ledger - All delinquent accounts which have been compromised shall be reflected or credited to their respective General Control Ledger once the dockets of said cases are returned to their original jurisdiction together with their respective ATCAs. The portion of the assessment that have been cancelled shall be posted to the column "ATCA" and the amount actually paid shall be posted to the column "PAID" of the General Control Ledger. The subcolumn "No. of Cases" under the Column "ATCA" shall not be filled, whereas, the subcolumn "No. of Cases" under the column "Paid" shall be filled with the number of cases abated or compromised, thus there will be no double-counting of the number of cases closed. 11. Reporting of the Campaign - At the end of each week, from the start of the campaign until the end, report by telegram shall be submitted by the Revenue Regional Director to the Commissioner through the Collection Office for consolidation. A model telegram is attached for your guidance. cdt 12. Return to Original Jurisdiction - Within 30 days after the expiration of the period for availment under this Order, all dockets and/or papers on delinquent accounts shall be returned to the respective offices who has original jurisdiction over the accounts; that is, P5,000.00 or below to the Revenue District Office, over P5,000.00 but not exceeding P20,000.00 to the Chief, Collection Branch for the Regional Director over P20,000 to the Collection Office. This jurisdictional amount shall be maintained until such time that the district ledger, regional ledger and national ledger is revised to suit the new jurisdictional amount provided for under Sec. 207 of the Tax Code, as amended. 13. Effectivity - This Order shall take effect immediately and shall remain enforce until December 31, 1988. (SGD.) BIENVENIDO A. TAN, JR. Commissioner