Amendments to Revenue Memorandum Order No. 10-68

July 30, 1969 REVENUE MEMORANDUM ORDER NO. 05-70 SUBJECT : Amendments to Revenue Memorandum Order No. 10-68 and Clarifying the policy of the Bureau of Internal Revenue on Acceptance of Payment of Compromise Penalty in Extrajudicial Settlement of the Penal Liabilities of those Violating the Provisions of the National Internal Revenue Code and Other Laws Administered by the Bureau of Internal Revenue and the Regulations Implementing Said Laws TO : All Department Chiefs, Regional Directors, Division Chiefs, Revenue District Officers, Collection Agents and others concerned Revenue Memorandum Order No. 10-68, dated March 7, 1968, was issued to put a stop to indiscriminate acceptance of payment of compromise penalties. It has been observed that Collection Agents have been accepting the payment of compromise penalties even in cases where criminal actions have already been filed against taxpayers and, as a consequence thereof, criminal charges against them have been dismissed. It has also been observed that violations of revenue laws and regulations have been compromised without regard as to the gravity of the offense and/or gravity of the guilt of the offender. Such indiscriminate acceptance of compromise penalties has adversely affected the campaign of the Bureau against tax evasion and, for this reason, Collection Agents have been prohibited from accepting payment of any compromise penalty without prior authority from the Commissioner of Internal Revenue or the Regional Director concerned. This Office, however, had not intended to prohibit altogether the acceptance and collection of compromise penalties in extrajudicial settlement of penal liabilities of those found violating revenue laws and regulations. Considering that there are violations which are minor and not warrant criminal prosecution of the offenders, and considering further that circumstances may render it more practicable to settle extrajudicially the penal liabilities of violators of certain provisions of the revenue laws and regulations, acceptance of compromise penalties is hereby authorized, subject to the following limitations and conditions, and in accordance with the procedure hereunder described: I No compromise penalty shall be assessed and/or collected in any case pending investigation by the Fraud Investigation Division or pending review by the Prosecution Division and in any case where a criminal charge had already been filed with the Fiscal or with the Court, except by specific authority of the Commissioner of Internal Revenue. It shall be the duty of the Chief, Fraud Investigation Division, to immediately inform the officials and employees concerned in the National Office and all Regional Directors of the cases pending investigation by the Fraud Investigation Division. And it shall be the duty of the Regional Director to inform the officials and employees concerned in his revenue region of said cases and instruct them not to accept the payment of any amount as compromise penalty in such cases. The Chief of the Prosecution Division and the Chiefs of the Legal Branches shall see to it that the officials and employees concerned are immediately informed of cases filed with fiscals or prosecutors and the courts. The payment of compromise penalty in extrajudicial settlement of the penal liability in the aforementioned cases may be accepted but only under the following conditions and procedure: (A) If the case is pending investigation by the Fraud Investigation Division or pending review by the Prosecution Division, the offer of the taxpayer to pay compromise penalty in extrajudicial settlement of his penal liability should be referred to whichever of the two divisions is handling the case, for study and submission to the Commissioner of recommendation on the said offer. (B) If the case is pending before any fiscal or prosecutor, the offer of the accused to extrajudicially settle his case should be referred to the Prosecution Division or the Legal Branch handling the case, for study and submission to the Commissioner, thru proper channels, of recommendation on the said offer. Such offer, however, shall not be accepted unless agreed to or not objected to, by the Fiscal or prosecutor. (C) The same procedure shall be followed if the case is already pending before the Court, but in such case, the offer shall not be accepted unless agreed to by the fiscal or prosecutor and authorized by the Court. In no case shall payment of compromise penalty be accepted without the payment first of the tax and surcharge due or assessed and the delinquency penalties that have accrued on account of late payment. II In cases not covered by Item I, compromise penalties may be assessed and/or collected subject to the following limitations and in accordance with the following procedure: (A) In the National Office, the assessment and/or collection of compromise penalties shall be by authority of (1) The Commissioner of Internal Revenue if the tax involved is more than P100,000.00; (2) The Deputy Commissioner of Internal Revenue (For Operations) if the tax involved is not more than P100,000.00; and (3) The Department Chief concerned if the tax involved is not more than P40,000.00. (B) In the Revenue Regions, the assessment and/or collection of compromise penalties shall be by authority of the Regional Director if the tax involved is not more than P20,000.00. If fraud appears to have been committed by the taxpayer, compromise penalty should not be assessed and/or collected. Instead, the case should be referred to the Legal Branch for appropriate action. III Collection Agents may accept and/or collect compromise penalties (even without an assessment or letter of demand or previous authority from the Commissioner of Internal Revenue, Regional Director, or the Revenue District Officer) only in the following cases: (A) Late payment of privilege and fixed taxes prescribed in Section 182 of the Tax Code; (B) Late payment of other internal revenue taxes where the tax involved is not more than P500.00; and (C) Late filing of return showing on its face that no tax is due and collectible. All other cases of violation of revenue laws and regulations shall be referred immediately by the Collection Agent to the Revenue District Officer who shall take appropriate action thereon. A collection agent shall accept the payment of compromise penalty suggested in an assessment and/or letter of demand provided that (1) the amount demanded or assessed, including delinquency penalties that have accrued on account of late payment, is likewise paid at the same time or had been previously paid; (2) the case is not one of those mentioned in Item I; and (3) the taxpayer is a resident of or doing business in the municipality or city where he is stationed, as shown in the assessment or letter of demand. IV A taxpayer who desires to pay compromise penalty in extrajudicial settlement of his penal liability (including cases where the compromise penalty is covered by an assessment and/or letter of demand) shall, before acceptance of payment of the compromise penalty, be required to accomplish B.I.R. Form No. __________, entitled "Offer to Pay Compromise Penalty", copy of which is hereto attached as Appendix "A". The Regional Director shall require the taxpayer to accomplish said form in three (3) copies for distribution as follows: Original copy For the Commissioner of Internal Revenue. Duplicate copy File copy of the Regional Office. Triplicate copy File copy of the taxpayer. In the case of the Chief of the Assessment Branch, Revenue District Officer and Collection Agent, the taxpayer shall be required to accomplish said form in four (4) copies for distribution as follows: Original copy For the Commissioner of Internal Revenue. Duplicate copy For the Regional Director Triplicate copy File copy of the official concerned. Quadruplicate copy File copy of the taxpayer. The original copy of said form as duly accomplished shall, upon acceptance of payment of the compromise penalty, be immediately forwarded thru channels (thru the Revenue District Officer and/or Regional Director, as the case may be) to the Commissioner of Internal Revenue, with recommendation indicated in the space therein provided for the purpose. The original copy of said form, as duly accomplished, shall be forwarded and addressed to the Commissioner of Internal Revenue (Attention: The Revenue Operations Head [Assessment]). V The acceptance of payment of compromise penalty, as authorized in this memorandum order, shall always be subject to the approval of the Commissioner of Internal Revenue and the action of the Commissioner on this matter shall be indicated in B.I.R. Form No._____, entitled "Offer to Pay Compromise Penalty", in the space therein provided for the purpose. VI The authority granted in subparagraph (B) of Item II and in Item III of this memorandum order to assess and/or accept the payment of compromise penalty is limited to cases of taxpayers who are residents or doing business within the territorial jurisdiction of the officials assessing or accepting payment of the compromise penalty. VII The schedule of compromise penalties provided for in existing circulars and orders shall be followed unless otherwise revised or amended. VIII The "Offer to Pay Compromise Penalty" (B.I.R. Form No.____) referred to in Items IV and V shall be processed in the National Office by the Revenue Operations Head (Assessment) for final action (approval or disapproval) of the Commissioner of Internal Revenue. The same shall be submitted to the Commissioner of Internal Revenue for his final action (approval or disapproval) and routed for this purpose as follows: (1) Chief, Fraud Investigation Division (2) Revenue Operations Head (Special Operations) (3) Chief, Prosecution Division (4) Revenue Operations Head (Legal) (5) Deputy Commissioner of Internal Revenue (Operations) (6) Commissioner of Internal Revenue For his approval or disapproval The recommendation for approval of the "Offer to Pay Compromise Penalty" shall be indicated in the form by the initial of the abovementioned officials under the name of the Commissioner of Internal Revenue. If any of the abovementioned officials recommends the disapproval of the acceptance of payment of the compromise penalty, the official concerned shall prepare a memorandum for the Commissioner of Internal Revenue stating therein, briefly and concisely, the reason or reasons for recommending disapproval, which memorandum shall be attached to the "Offer to Pay Compromise Penalty". The action of the Commissioner of Internal Revenue on the "Offer to Pay Compromise Penalty" (approval or disapproval) shall be indicated in the space provided for in the said form. In case of disapproval of the "Offer to Pay Compromise Penalty", the Revenue Operations Head (Assessment) shall, for and in behalf of the Commissioner of Internal Revenue, inform the taxpayer by letter, stating the reason or reasons for disapproval and attaching thereto a certified true copy of the "Offer to Pay Compromise Penalty" as disapproved. The official or officials concerned shall be furnished with a copy of said letter. Where the "Offer to Pay Compromise Penalty" is disapproved, the amount which was received as compromise penalty shall be returned or, if there is any amount due from taxpayer, applied in payment of taxpayer's liability. The action on this matter shall be taken by the Chief, Appellate Division, and the "Offer to Pay Compromise Penalty" shall be considered as the request for refund or tax credit. The Revenue Operations Head (Assessment) shall see to it that the original copies of "Offer to Pay Compromise Penalty" are properly filed in the Records Division, for records purposes. Strict compliance herewith is enjoined. MISAEL P. VERA Commissioner of Internal Revenue APPENDIX "A" B.I.R. Form No. ___ April 1, 1969 OFFER TO PAY COMPROMISE PENALTY I, _________________, a resident of _______________, hereby voluntarily offer and agree to pay the amount of P_______ as compromise penalty in extrajudicial settlement of my violation consisting of ________________________________________________________________________________________________________________________________________, (State nature of violation) under the provisions of Section 309 of the National Internal Revenue Code, and in this connection hereby further agree: That the acceptance of the payment of the compromise penalty in this case is subject to the approval of the Commissioner of Internal Revenue and, in case of disapproval, the case against me for said violation shall not be considered as extrajudicially settled; and That in case of disapproval by the Commissioner of Internal Revenue of this offer, the amount paid and received as compromise penalty shall first be applied as tax credit against any tax (including surcharge and interest) due and collectible from me and only the balance, if any, shall be refunded. ________________, 19___. ______________________ (Signature of the Taxpayer) ____________________________________________________________________ I hereby certify that the abovementioned act or omission is a violation of the provisions of ______________________________________________ (state section and the law violated) and that I received the amount of P__________, under Official Receipt No.______________, dated ___________________________, as compromise penalty in extrajudicial settlement of said violation, subject to the approval of the Commissioner of Internal Revenue; that the violation of law in this case has been fully explained to the taxpayer; and that the "Offer to Pay Compromise Penalty" in this case was made voluntarily by the taxpayer. __________________________ (Printed name and signature of the Regional Director, Revenue District Officer, or Collection Agent) RECOMMENDING APPROVAL/DISAPPROVAL: _____________________ (Designation) _________________________ __________________________ (Printed name and signature of the (Printed name and signature of the Revenue District Officer) Regional Director) Revenue District No.__________ Revenue Region No.__________ APPROVED/DISAPPROVED: MISAEL P. VERA Commissioner of Internal Revenue October 3, 1969 The Honorable The Secretary of Finance Manila Sir: I have the honor to forward herewith for approval proposed Revenue Memorandum Order No.____________ providing the procedure for the acceptance and payment of compromise penalties for violation of the internal revenue law and regulations. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue