Compromise Settlement of Certain Deficiency Tax Assessment and Abatement of the Penalties Arising from Certain Late Payment of Taxes

September 29, 1993 REVENUE MEMORANDUM ORDER NO. 45-93 SUBJECT : Compromise Settlement of Certain Deficiency Tax Assessment and Abatement of the Penalties Arising from Certain Late Payment of Taxes TO : All Internal Revenue Officers and Others Concerned 1. PREMISES. - The purpose of this Order is to accelerate the collection of taxes either through compromise or abatement, pursuant to Section 204, NIRC, as amended by R.A. No. 7646, portion of which provides: cdt ". . . the Commissioner may - (1) Compromise the payment of any internal revenue tax when - (a) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (b) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax: Provided , however , That final assessments issued against large taxpayers as defined under Section 4 of this Code shall not be compromised for less than fifty percent (50%). Any such compromise involving said taxpayers lower than fifty percent (50%) shall be subject to the approval of the Secretary of Finance." (2) Abate or cancel a tax liability, when - (a) The tax or any portion thereof appears to be unjustly or excessively assessed; or acd (b) The administration and collection costs involved do not justify the collection of the amount due. "All criminal violations may be compromised except: (a) those already filed in court, and (b) those involving fraud. "The Commissioner of Internal Revenue may delegate his power to compromise internal revenue cases to the Deputy Commissioners and the Regional Directors, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated for the purpose." 2. COMPROMISE. - Basis For Compromise Settlement. - 2.1 Section 204, NIRC, and this RMO shall apply if there is a reasonable doubt on the validity of the assessment, e.g., where the taxpayer was issued with a deficiency tax assessment without the benefit of any actual tax audit investigation of his records, and any other form of any actual tax audit investigation of his records, and any other form of arbitrary assessment, etc. However, cases involving interpretation of a difficult question of law shall not be considered embraced by the term "doubtful validity." It is the policy under this Order that cases involving a difficult question of law be resolved by the court not only to put to rest the issue but to enrich jurisprudence as well. 2.2 If the financial position of the taxpayer demonstrates a clear inability to pay the entire amount assessed, e.g., where the taxpayer is an individual whose source of income is purely from salaries and whose take-home pay is barely sufficient to support himself and his family's basic needs; or, where the taxpayer is a corporation whose latest financial condition is a "capital deficit," etc. acd 3. COVERAGE OF COMPROMISE. - The compromise settlement under this Order shall cover all deficiency internal revenue taxes for which formal assessments have been issued, whether or not the taxpayer concerned protested the assessment. The foregoing, however, excludes any compromise settlement of deficiency withholding taxes due from withholding agents. 4. DELEGATION OF POWER TO COMPROMISE. - Pursuant to Section 204, NIRC, all Revenue Regional Directors are hereby given authority to accept/approve requests for compromise settlement subject, however, to the following conditions: 4.1 The assessment involves an amount of P1,000,000.00 or less, inclusive of surcharge and interests forming part of the said assessment. 4.2 The compromise amount shall be equal to fifty (50%) or more based on the amount assessed inclusive of surcharge and interests forming part of the said assessment. 5. REVENUE REGIONAL APPROVAL COMMITTEE. 5.1 There is hereby created a Revenue Regional Approval Committee, the membership of which follows: a. Regional Director Chairman b. Asst. Regional Director Vice-Chairman c. Chief, Assessment Branch Member d. Chief, Collection Branch Member e. Chief, Legal Branch Member 5.2 The Revenue Regional Approval Committee shall review and approve applications for compromise settlement embraced under paragraph 4 of this Order. 6. REVENUE NATIONAL APPROVAL COMMITTEE. - Other Cases. - Any request for a compromise settlement of any deficiency internal revenue tax case, pursuant to Sec. 204, NIRC, which is not embraced under paragraphs 3 and 4 of this Order shall be reviewed and evaluated by the Revenue National Approval Committee. 6.1 There is hereby created a Revenue National Approval Committee, the membership of which are as follows: a. Commissioner of Internal Revenue - Chairman b. DCIR for Assessment and Collection - Vice-Chairman c. DCIR for Legal and Administration - Vice-Chairman d. Chief, Assessment Service - Member e. Chief, Collection Service - Member f. Chief, Legal Service - Member g. Chief, Special Operations Service - Member 6.2 The Revenue National Approval Committee shall review and approve applications for compromise settlement embraced under paragraph 6 of this Order. 7. ABATEMENT AND PENALTIES. - Premises. - There are some taxpayers who do not file the required tax returns, e.g. those in the underground economy. While, in general, most taxpayers file the required tax returns and pay their taxes, it does not necessarily follow, however, that all these filers have also fully paid their respective tax liabilities. casia The purpose of paragraph 7 of this Order is to accelerate collection of taxes from this group of taxpayers thru abatement of the penalties, and to save on administration costs in the discovery of non-filers/non-payers by encouraging this group of taxpayers to pay voluntarily, pursuant to Sec. 204 (2) NIRC, as amended. 8. COVERAGE OF ABATEMENT. - This paragraph embraces the following: a. Any person who failed to file any required tax return and pay the corresponding tax thereon (e.g., income tax return, VAT return, percentage tax return, etc.) for 1992 and prior years. b. Any person who filed tax returns for 1992 and prior years but did not report thereunder the correct amount of tax due. c. Any person who has filed a tax return, correctly computed the tax due thereunder, but failed to pay the full amount of the tax due per the said tax return (e.g., an individual who filed an income tax return, opted for the installment payment of the income tax due thereunder, but failed to pay the second installment). Notwithstanding the foregoing situations, the abatement of penalties shall not apply to surcharges and penalties imposable upon the withholding agent, either because of failure to remit and pay withheld taxes, or failure to withhold and pay the required taxes. cd 9. BENEFIT UNDER ABATEMENT. - Any person availing of abatement under this Order shall be governed by the following rules: a. If he has not filed the tax return, he shall voluntarily file the same with the Revenue District Office which has jurisdiction over his principal place of business or legal residence. b. He shall pay the full amount of the basic tax due thereunder. c. He shall not be imposed with any penalty incident to late filing and late payment of the tax due thereunder. d. He shall be relieved from any criminal or civil liability incident to the aforesaid late filing and late payment of the tax. e. If he filed the tax return but did not report the correct amount of tax due from him, he shall voluntarily file his amended tax return and pay the full amount of the additional basic tax due, without imposition by the BIR of any of the aforementioned penalties. 10. PROCEDURES. - All abatement cases acted upon by all revenue regional offices shall be forwarded to the Revenue National Evaluation Committee for review and evaluation, subject to approval of the Commissioner. 11. EFFECTIVITY. - This Order shall take effect from date hereof until December 31, 1993. All concerned are hereby enjoined to give this Order as wide a publicity as possible. (Sgd.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue