Adoption and Implementation of a "Revised Schedule of Compromise Penalties" for Internal Revenue Violations

August 18, 1986 REVENUE MEMORANDUM ORDER NO. 26-86 SUBJECT : Adoption and Implementation of a "Revised Schedule of Compromise Penalties" for Internal Revenue Violations TO : All Internal Revenue Officers and Others Concerned Rationale and objective : Under Sec. 246 (formerly Sec. 295) of the National Internal Revenue Code, criminal violations may be compromised except: (a) those already filed in court, and (b) those involving fraud. cdt Compromise is a power vested by law in the Commissioner (Koppel [Phil.] vs. Collector, 87 Phil. 351) and in the exercise thereof, payment of "compromise penalties" may be suggested in lieu of criminal prosecution. (Collector v. UST, 104 Phil. 1962) For regulatory purposes, therefore, and in order to insure a uniform application of the various compromise penalties that may be collected in internal revenue violations, the adoption and implementation of the above-captioned Revised Schedule of Compromise Penalties, is necessary. SECTION 1. Adoption of a revised schedule of compromise penalties . - In all cases of criminal violations of the National Internal Revenue Code, the penalties for which are prescribed in Title XI of the NIRC, as amended by PD 1994, and pursuant to Sec. 246 thereof, it is directed that henceforth compromise penalties for criminal violations of the Tax Code be governed strictly in accordance with the attached "Revised Schedule of Compromise Penalties," marked as Annex "A" and made an integral part hereof. SECTION 2. Guidelines in the implementation of the revised schedule of compromise penalties . - Implementation of the aforestated schedule should observe the following guidelines: (1) Inasmuch as Sec. 246 of the Tax Code excludes cases involving fraud, the attention of internal revenue officers is invited to the several violations in the said schedule such as violations of Sec. 287 (wilful attempt to evade or defeat taxes) or Sec. 290 (wilful falsification by CPA of financial statements) which are beyond the power of this Office to compromise. casia Cases involving fraud should, therefore, be referred to the Legal Branch having jurisdiction over the case, or to the Prosecution Division, as the case may be, for the institution of the corresponding criminal action. (2) In no case should the compromise penalty differ in amount from those specified in the aforementioned Schedule. (3) Since compromise penalties are only amounts suggested in settlement of criminal liability, and may not therefore be imposed or exacted on the taxpayer (Collector v. UST, supra ; also Collector v. Bautista, 105 Phil. 1326; Phil. Int'l. Fair v. Collector, 4 SCRA 774), in the event that a taxpayer refuses to pay the suggested compromise penalty, the violation should be referred for criminal action as heretofore mentioned. cdt (4) All amounts of compromise penalties incident to violations should be itemized in the assessment notice and/or demand letter along with other administrative penalties like surcharge and interest, and shall be collected and accounted for under the usual procedures, as internal revenue. SECTION 3. Repealing Clause . - All regulations, rules, orders, or portions thereof which are contrary to or inconsistent with the provisions of this Memorandum Order, are hereby repealed or revoked accordingly. SECTION 4. Effectivity . - This Memorandum Order shall take effect immediately. SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue ANNEX A REVISED SCHEDULE OF COMPROMISE PENALTIES (Based on Chapter II, Title XI, NIRC, as amended by PD 1994) CODE Nature of violation Criminal penalty imposed Amount of compromise penalty SEC. 287 Willful attempt to evade Fine of not more than P10,000 This violation cannot be com- or defeat any tax imposed or imprisonment for not more promised because it involves by the National Internal than 2 years or both. fraud - Sec. 246, NIRC. Revenue Code or the payment thereof. 309 Failure to pay internal Fine of not more than P1,000 If the amount of tax unpaid revenue tax at the time or imprisonment for not more or times requires by than 6 months, or both. law or regulations. 1 Exceeds But does Compromise is: not exceed x x x P2,000 P100 P2,000 5,000 150 5,000 10,000 1,000 10,000 15,000 2,000 15,000 20,000 3,000 20,000 50,000 4,500 50,000 100,000 6,000 100,000 500,000 8,000 500,000 1,000,000 10,000 1,000,000 x x x 15,000 Failure to make any re- Fine of more than P1,000 If gross annual sales, or receipts turn, keep records or or imprisonment for not supply information more than 6 months, or both. required by law or regulations. 2 Exceeds But does Compromise is: not exceed P10,000 or below P50 10,000 P20,000 100 20,000 30,000 150 30,000 50,000 250 50,000 75,000 375 75,000 100,000 500 200,000 300,000 1,000 300,000 x x x x 1,500 Failure to withhold or re- Fine of not more than P1,000 If the amount of tax not withheld mit withheld taxes at the or imprisonment for not more or remitted - times required by law or than 6 months, or both regulations. 3 Exceeds But does Compromise is: not exceed x x x P2,000 P100 P2,000 5,000 150 5,000 10,000 1,000 10,000 15,000 2,000 15,000 20,000 3,000 20,000 50,000 4,000 50,000 100,000 6,000 100,000 500,000 8,000 500,000 1,000,000 10,000 1,000,000 x x x 15,000 288 Misrepresentation as to Fine of not less than P3,000 This violation cannot be compro- actual filing of return or or imprisonment of not mised because it involves fraud. statement already filed. exceeding 1 year or both. (Sec. 246, NIRC) 289 Any act or omission by Fine of not less than P10,000 P2,000 for corporation a corporation which is but not exceeding P100,000 penalized by the NIRC. (in addition to the liability of responsible corporate officer, partner or employee). P1,000 for responsible officer 290 (a) Violations committed (a) Fine of not less than by an independent CPA, P10,000 but not exceeding as follows: P50,000 or imprisonment of not less than 4 years and 1 day to 6 years or both. (1) Willful falsification (1) This violation cannot be of any report or state- compromise because it involves ment on any examination fraud. (Sec. 246, NIRC) or audit; rendering reports (including exhibits, statements, etc.) etc.) not verified by him personally or under his supervision or by a member of his firm or staff in accordance with sound auditing practices. (2) Certification of financial (2) This violation cannot be statement of a business compromise because it involves enterprise containing an fraud. (Sec. 246, NIRC) essential misstatement of facts or omission as to transactions, taxable income, deduction and exemption of a client. (b) Violations committed (b) Fine of not less than by persons who are not P10,000 but not exceeding CPA's - P50,000 or imprisonment of not less than 4 years (1) Examination and and 1 day to 6 years or (1) P2,500.00 audit of books of both. accounts of taxpayers. (2) Offering to sign and (2) P2,500.00 certify financial state- ments without audit; (3) Offers any taxpayer (3) P2,000.00 the use of accounting for bookkeeping records for internal revenue purposes not in confor- mity with the require- ments in the Code and regulations; (4) Knowingly making (4) This violation cannot be false entry or enters any compromise because it involves false or fictitious name fraud. (Sec. 246, NIRC) in the books of accounts mentioned in the pre- ceding paragraphs. (5) Keeping of two or (5) Same. No compromise due to more sets of such records fraud (Sec. 246, NIRC) or books of accounts. (6) In any way commits (6) P500.00 an act or omission in violation of the provisions of Sec. 290, NIRC or (7) Failure to keep books (7) P500.00 of accounts or records in a native language, English or Spanish or make a true translation or where books kept in a native language, English or Spanish are found to be at material variance with books kept in another language. 291 (a) Carrying on a business (a) Fine of not less than (a) If the capital - without payment of P1,000 but not more than privilege tax P5,000 or imprisonment of not less than 1 month but not more than 6 months or both. Exceeds But does Compromise is: not exceed x x x P10,000 P500 P10,000 50,000 1,000 50,000 200,000 1,500 200,000 1,000,000 2,500 1,000,000 x x x 5,000 (b) Engaging in busi- (b) Fine of not less than (b) P2,000.00 ness as distiller, rectifier, P5,000 but not more than repacker, compounder or P25,000 or imprisonment manufacturer of any of not less than 6 months, article subject to excise but not exceeding 3 tax without payment of years, or both privilege tax. 292 Illegal collection of Fine of not less than P2,000.00 foreign payments - P5,000 nor more than collection of foreign P25,000 or imprisonment payments under Sec. of not less than 6 months 70, NIRC without any but not exceeding license or in violation 3 years, or both. of implementing regulations. 293 Unlawful possession Fine of not less than P10,000.00 of cigarette paper in P20,000 but not more than bobbins or rolls, P100,000 and imprisonment cigarette tipping paper of not less than 6 years or cigarette filter tips. and 1 day but not more than 12 years. 294 Unlawful use of Fine of not less than P10,000.00 denatured alcohol. P20,000 but not more than P100,000 and imprisonment of not less than 6 years and 1 day but not more than 12 years. 295 Shipment or removal Fine of not less than P10,000.00 of liquor or tobacco P20,000 but not more than products under false P100,000 and imprisonment name or brand. of not less than 6 years and 1 day but not more than 12 years. (a) Unlawful possession (a) If the appraised value of Criminal penalty is: or removal of imported the article under the Tariff articles subject to excise & Customs Code (TCC) Fine P100 - P50 10% of value tax without payment of Imprisonment 15-30 days tax. Exceeds But does Penalty is: Fine P1,000 - P5,000 10% of value not exceed Imprisonment 6 mos. & 1 day - 4 yrs. x x x P500 Fine : P100 - P500 Fine P25,000 10% of value (Imprisonment 15 - 30 days Imprisonment 4 yrs. & 1 day - 8 yrs P500 50,000 Fine : P1,000 - 5,000 (Imprisonment 6 mos & 1 day Fine P20,000-50,000 10% of value - 4 yrs. Imprisonment 10 yrs. & 1 day - 14 yrs. 50,000 150,000 Fine : P25,000 (Imprisonment 4 yrs & 1 day - 8 yrs. 150,000 x x x Fine : P20,000 - P50,000 (Imprisonment 10 yrs/1 day - 4 yrs. (b) Unlawful possession (b) Fine of not less than 10 (b) P500.00 of locally manufactured times the amount of excise articles subject to excise tax due but not less than P500 tax. nor more than P10,000 and Imprisonment of 6 months and 1 day to 4 years. (c) Unlawful removal of (c) Fine of not less than 10 (c) P10,000.00 untaxed articles subject times the amount of excise to excise tax from the tax due but not less than P1,000 place of production. nor more than P10,000 and Imprisonment of not less than 6 months and 1 day but not more than 6 years. (a) Illegal cutting of (a) Fine of not less than (a) P5,000.00 forest products (cutting P10,000 but not more than without license or in P100,000 or imprisonment of violation thereof.) not less than 4 years and 1 day but not more than 6 years or both. (b) Illegal removal of (b) Fine of not less than (b) P2,000 - P10,000 forest products (re- P5,000 but not more than moval without invoice P50,000 or imprisonment for not or discharging with- less than 6 months and 1 day out permit). but not more than 2 years, or both. 298 (a) Failure or refusal (a) Fine of not less than First Second to issue receipts or P1,000 nor more than Offense Offense sales or commercial P50,000 or imprisonment invoices; issuing of not less than 6 months A. For failure to receipts or invoices not and 1 day but not more issue receipts truly reflecting and/or than 2 years or both. or sales or containing all infor- commercial mation required therein invoices P1,000 P1,500 or using multiple or double receipts or B. For refusal to invoices. issue receipts or sales or commercial invoices P1,500 2,000 C. For issuance of receipts that do not truly reflect and/or contain all the information required to be shown therein 500 500 If the information missing is the correct amt. of the transaction 1,000 1,500 D. For possession or use of unregis- tered receipts or invoices or use of unregistered cash register machines 3,000 6,000 E. For possession or use of multiple or double receipts or invoices 3,000 6,000 F. For printing or causing, aiding or abetting the printing of: 1. Receipts of invoices w/o authority from the BIR 3,000 6,000 2. Double or multiple sets of receipts or invoices 3,000 6,000 3. Receipts of in- voices not bearing any of the following P3,000 P6,000 a. Consecutive numbers b. Name of Taxpayer c. Business Style d. Business address of the person or entity to use the same e. Taxpayer Account No. (b) Other punishable acts (b) Fine of not less than f. Name, Address, date, or omissions relating to P1,000 nor more than authority no. of the receipts or invoices. P50,000 or imprisonment printer and inclusive of not less than 6 months serial numbers of the and 1 day but not more batch or receipts than 2 years or both. printed. g. For failure of the printer to submit the required quarterly report under Sec. 182 of the Tax Code as amended P1,000 P1,500 (i) printing of receipts (i) P1,000 P1,500 or sales/commercial invoices w/o authority from BIR; (ii) printing of double (ii) P2,000 P5,000 or multiple sets of invoices or receipts; (iii) printing of un- (iii) P2,000 P5,000 numbered receipts or invoices, not bearing the names, business, style, TAN and business address of the person or entity; or (iv) failure to submit (iv) P1,000 P1,500 the quarterly report required in Sec. 182, NIRC. 299 Offense relating to internal revenue stamps - (1) Making, importing, Fine of not more than (1) P5,000 selling, using or P10,000 or imprisonment possessing without for not more than 5 express authority from years or both. the Commissioner any die for printing or making stamps, label tags or playing cards; (2) Erasing the cancel- - same- (2) This violation cannot be lation marks of any compromised because it stamps previously used involves fraud. (Sec. 246, NIRC) or alters, the written figures or letters, or cancellation marks on internal revenue stamps; (3) Possession of false, - same - (3) This violation cannot be counterfeit, restored or compromised because it altered stamps, labels, involves fraud. (Sec. 246, NIRC) or tags, or causes the commission of any such offense by another. (4) Selling or offering Fine of not more than (4) This violation cannot be for sale any box or P10,000 or imprisonment compromised because it package containing for not more than 5 years involves fraud. (Sec. 246, NIRC) articles subject to or both. excise tax with false, spurious or counterfeit stamps or labels or sells from any such fraudulent box, package, or container as aforesaid; (5) Giving away or - same - (5) P300 accepting from another or sells, buys, or uses containers on which the stamps are not completely destroyed. 300 Failure to obey summons; Fine of not less than This violation should not be com- to testify; or to appear P1,000 or imprisonment promised because if compromised, and produce books of of not more than 1 year it will nullify the coercive power accounts, records, etc. or both. of the CIR under Sec. 7 (b), NIRC or to furnish information to obtain information or facts required under the NIRC. necessary for investigation of tax liabilities. 302 Misdeclaring or misre- Summary cancellation or This violation cannot be presentation by manu- withdrawal of permit to compromised because it facturers of articles engage in business as a involves fraud. (Sec. 246, NIRC) subject to excise tax manufacturer of articles under Title IV, NIRC, subject to excise tax. of any pertinent data or information required therein. 309 Violation of any pro- Fine of not more than P300 vision of the National P1,000 or imprisonment of Internal Revenue Code not more than 6 months or any regulation of or both. the Ministry of Finance for which no specific penalty is provided by law. 310 Sale, transfer, Fine of not less than twice 20% of value of property encumbrance or any the value of the property other disposition of sold, encumbered, or dis- any property or part posed of, but not less than thereof placed under P5,000 or imprisonment of constructive distraint, not less than 2 years and 1 without the knowledge day but not more than 4 and consent of the years, or both. Commissioner. 311 Failure to surrender Violator is personally liable P2,000 property placed under to pay a sum equal to the distraint and levy. value of the property or rights not surrendered (not exceeding the amount of taxes due including penalties and interest). In addition, such violation shall be fined a sum of not less than P5,000 or impri- sonment for not less than 6 months and 1 day but not more than 2 years, or both. 312 Procuring the unlawful Fine or not more than P2,000 This violation should not be divulgence of any or imprisonment of not less compromised because it is against confidential information than 6 months nor more than public policy to allow divulgence regarding the business, 5 years or both. of confidential information, unless income or inheritance this is validly authorized under of any taxpayer. existing law. 1 Willful failure to pay any internal revenue tax at the time or times required by law or regulation is penalized by a fine of not less than P5,000 nor more than P50,000, or imprisonment of not less than 6 months and one day but not more than 5 years, or both. (Sec. 288, NIRC, as amended by PD 1994.) There is no specific amount compromise penalty prescribed in this Schedule for willful to pay any tax but the same may be compromised at the discretion of the Commissioner on a case to case basis. 2 Willful failure to make any return, keep records, or supply information at the time or times required by law or regulations is penalized by a fine of not less than P5,000 nor more than P50,000 or imprisonment for not less than 6 months and one day but not more than 5 years, or both. (Sec. 288, NIRC, as amended by PD 1994) There is no specific amount of compromise penalty prescribed in this Schedule for willful failure to make or file return, etc. but the same may be compromised at the discretion of the Commissioner on a case to case basis. 3 Willful failure to withhold or remit withheld taxes at the time or times required by law or regulations is penalized by a fine of not less than P5,000 nor more than P50,000 or imprisonment for not less than 6 months and 1 day but not more than 5 years or both. (Sec. 288, NIRC, as amended by PD 1994) There is no specific amount of compromise penalty prescribed in this Schedule for willful failure to withhold or remit withheld taxes at the time or times required by law but the same may be compromised at the discretion of the Commissioner on a case to case basis.