The term “task force” may be familiar to everyone because of the Inter-Agency Task Force (IATF) that dealt with the pandemic. It was composed of representatives from various executive departments, apparently to ensure that the members took a collaborative approach to combating COVID-19.
The task force approach lends itself readily to the tax enforcement mandate of the Bureau of Internal Revenue (BIR). While there are no recent administrative issuances serving as guidelines for the creation of task forces or special audit teams, previous task forces were formed to focus on audits of specific industries.
For example, the BIR recently created a task force to inspect registered business enterprises (RBEs) in the information technology-business process management (IT-BPM) industry, to ensure that RBEs comply with conditions for the continuous availment of incentives under the CREATE Law. Last year, a special task force was also created to monitor compliance of online merchants and influencers, possibly due to the rise of online transactions during the pandemic.
Previous task forces were likewise created to address matters of public concern. One created by the BIR’s Legal Inspection Group looked into a former President to assess whether bribes and kickbacks resulted in a deficiency income tax situation.
In the absence of guidance on the scope of action a task force may carry out, what should a taxpayer do upon receipt of a notice that his business is going to be audited by a task force? Should he worry, considering that task forces are usually related to matters of public concern?
LETTER OF AUTHORITY (LoA)Medicard Philippines, Inc. vs. Commissioner of Internal Revenue (CIR) defines a Letter of Authority (LoA) as the “authority given to the appropriate revenue officer assigned to perform assessment functions.” It empowers or enables the revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. If a revenue officer is not authorized by the CIR or by his duly authorized representative through an LoA, the assessment is deemed invalid as it violates the taxpayer’s right to due process.
Jurisprudence shows that despite the creation of a task force, special auditors should still be authorized pursuant to a valid LoA. RDAO No. 08-03 also clearly states that no special task force may be created without the approval of the Commissioner. Thus, it cannot be said that the mere creation of the task force is equivalent to a LoA.
Hence, the task force cannot ripen into assessment. An assessment must always originate from a LoA; otherwise, the assessment is void.
HOW ARE THE TASK FORCE’S FINDINGS ENFORCED?After the issuance of the LoA, if the taxpayer is found liable for deficiency tax during an investigation conducted by a Revenue Examiner, the taxpayer must be informed through a Notice of Discrepancy (NoD), a Preliminary Assessment Notice (PAN), a Final Letter of Demand (FLD) or Final Assessment Notice (FAN), and finally, a Final Decision on Disputed Assessment (FDDA).
A review of the cases that involved a task force would show that the findings of a task force are also followed through in a similar manner to that of an ordinary audit. In the case of Sps. Estrada vs. BIR, the required notices such as the PAN, FLD, and FDDA were served to the taxpayers. The Court of Tax Appeals decision also states that the taxpayers were given sufficient opportunity to be heard, having been able to effectively protest the PAN and FAN.
Thus, the process of enforcement is the same for both types of tax audit.
WHAT DUE PROCESS IS ACCORDED TO THE TAXPAYER?While replete with case law and issuances explaining the procedures applicable to a task force, it is evident in jurisprudence that there is no difference in due process afforded to taxpayers, whether subjected to a regular audit, or that of a task force. As stated previously, taxpayers are still afforded due process with the service of the notices mandated under the law and are able to submit and file their protests to address the findings of the task force.
To note, the taxpayer has 30 days to reply to the NoD, 15 days to file a reply to the PAN, 30 days to file a protest to the FAN, and 30 days to appeal to the FDDA. These timelines should similarly apply to the audit conducted by a task force.
SUSPENSION OF TASK FORCESIt is thus easy to point out where the confusion and concern come from since there is not much difference between a task force’s proceedings and a regular tax audit. These concerns were raised by the Department of Finance (DoF) in May when it called for the suspension of the BIR’s special audit task forces, noting that task forces caused confusion for some taxpayers and that the creation of such task forces duplicated functions within the bureau.
While not addressing the remarks of the DoF on redundancy, the BIR issued Revenue Memorandum Circular (RMC) No. 76-2022 which suspended audit and other field operations under the authority of task forces created through Revenue Special Orders, Operations Memoranda, and other similar orders/directives. On the same day, the BIR issued RMC No. 77-2022 clarifying the earlier RMC stating that despite the suspension, service of assessment notices, warrants, and seizure notices would still be given effect. Similarly, taxpayers need not secure authority from revenue officials if they are to voluntarily pay their known deficiency taxes.
Task forces are created mainly to focus on a specific objective. However, if these units perform the same functions as that of officers assigned to perform a regular audit, it calls into question whether the creation of a task force is truly necessary or merely causes anxiety and confusion for taxpayers. Sure enough, taxpayers are still recovering from the stress and trauma brought about by the pandemic. As such, the BIR should ease off on taxpayers and not add to the burden of their recovery.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Anna Gabrielle L. Sunga is an associate of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.