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COLLECTION MANUAL - CHAPTER III (DELINQUENT ACCOUNTS)

Collection of Accounts Receivables supports the mission of the Bureau of Internal Revenue in its mandate to collect the correct amount of taxes from taxpayers. While accounts receivables represent only about 1/10 of 1% of the Bureau’s total collections, intensified efforts in their collection creates strong impact on taxpayers to voluntarily pay their tax obligations. Accordingly, effective and efficient receivable accounts management will not only contribute to increase tax collections but can be a tool to enhance taxpayer’s compliance.

 

The accounts receivables emanates from the following:

  1. Non-payment of tax due arising from:
  2. Dishonored check;
  3. Non-payment of second installment of the income tax of the individual taxpayer; and
  4. Non-payment of tax due per return.
  5. Non-payment of tax due per Final Assessment Notice (FAN) or Final Decision on Disputed Assessment (FDDA) within the prescribed period of thirty (30) days from the issuance of the FAN per Monthly Summary of Taxes Assessed (BIR Form No. 40.00) or the FDDA.
  6. Result of audit or compliance checks conducted pursuant to Returns Processing System (RPS) assessment, pre-audit or table audit, short audit, package audit, assessment through Letter Notice (LN), and such other assessments issued in the course of verifying the level of taxpayer’s compliance; and
  7. Valid stopfiler.

This Chapter covers the accounts receivables, including delinquent accounts, being handled by the Collection Service through the Collection Enforcement Division (CED), the Collection Section of the Revenue District Office (RDO)/Large Taxpayer District Office (LTDO), the Collection Division of the Regional Office and the Large Taxpayer Collection Enforcement Division (LTCED) of the Large Taxpayer Service (LTS). The enforcement of collection of the Bureau’s receivables is performed by using a variety of collection techniques which are discussed in detail in this Chapter.[1]

DEFINITION OF TERMS

For purposes of this Manual and in order to provide clarity and better understanding of the policies and procedures in the implementation thereof, the words and phrases herein provided are defined as follows:

  1. Accounts Receivables – refer to the amount of tax due from a taxpayer who failed to pay the same within the time prescribed for its payment arising from a self-assessed tax, or a deficiency tax assessment issued by the Bureau. These accounts also include deficiency tax assessments covered by FANs even if the same are still subject matters of administrative or judicial protests filed by taxpayers within the prescribed reglementary period.
  2. Delinquent Accounts – refer to Accounts Receivables that arose from unpaid self-assessed taes or tax assessments which are already considered as final and executory due to any of the following:
  3. a. failure to file a protest within thirty (30) days from receipt of the assessment;
  4. b. failure to submit all relevant supporting documents within sixty (60) days from filing of the administrative protest;
  5. c. failure to appeal to the Court of Tax Appeals (CTA) within thirty (30) days from receipt of the BIR decision denying the administrative protest; and
  6. d. issuance by the competent Court of final adverse decision on the assessed taxes, in favor of the BIR.
  7. Assessment – refers to the act or process of establishing, fixing, or determining the tax liability of a taxpayer. It is also a demand made on a concerned taxpayer to settle the amount indicated in a valid assessment notice. It also signals the time when penalties and interests on any unpaid tax liability begin to accrue against the taxpayer. As a general rule, it is a preliminary but essential step to the enforcement of collection prior to the issuance of warranties of distraint and levy; and it is required to establish a cause for judicial action against the taxpayer.
  8. Deficiency tax assessment – is an assessment made by an authorized Revenue Officer whereby the correct amount of the tax due froma taxpayer is determined after the conduct of audit, examination or investigation of the taxpayer’s tax returns/declarations filed, books of accounts, records, documents and/or other third-party information.
  9. Self-Assessment – refers to one in which the tax due is assessed by himself, and the amount of tax assessed is reflected in the tax return/declaration that is filed by him and the tax assessed is paid at the time he files the tax return/declaration.
  10. Jeopardy Assessment – it is an assessment made by an authorized Revenue Officer without the benefit of complete or partial audit, in the light of the said official’s belief that the assessment and collection of a deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to comply with the audit/investigation requirements to present his books of accounts and/or other pertinent records, substantiate all or any of the deductions, exemptions or credits claimed in the filed return. In order to prevent the issuance of a jeopardy assessment, the taxpayer may be required to execute a waiver of the statute of limitations.
  11. Preliminary Assessment – refers to an initials or tentative assessment that is made when it is determined that there exist sufficient basis to assess the taxpayer for any deficiency tax or taxes. A notice on the preliminary assessment is being formally issued and the same must show, in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based. As a rule, the taxpayer is accorded the chance to respond to the proposed assessment fifteen (15) days from receipt thereof; otherwise, he will be considered in default, and a formal letter of demand and final assessment notice calling for the payment of the deficiency tax liability, inclusive of the applicable penalties, shall be caused to be issued.
  12. Final Assessment – refers to a formal assessment issued against a taxpayer which accompanies the formal demand letter that contains the statement of the facts, the law, rules and regulations, or jurisprudence on which an assessment is made.
  13. Undisputed Final Assessment – is an assessment that was not protested within the time allowed by law thereby making the same final, executory and demandable.
  14. Disputed Assessment – refers to an assessment made where the taxpayer contests the legality or validity of the assessment and request that the same be cancelled or withdrawn.
  15. Erroneous Assessment – refers to an assessment made by a person who has the authority to act but the same is erroneous or he errs in the exercise of that power.
  16. Letter of Demand – refers to the formal communication issued to the taxpayer calling for the payment of final deficiency tax assessment, including all applicable penalties. In order to be considered valid, the formal demand letter must clearly state, in details, the facts and the laws, rules and regulations, or jurisprudence on which the proposed assessment is based.
  17. Request for Reconsideration – refers to a plea for a re-evaluation of an assessment on the basis of existing records without the need of additional evidence. It may involve both a question of fact or of law or both.
  18. Request for Reinvestigation – refers to a plea for a re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or both.
  19. Basic tax due – refers to any of the following:
  20. Unpaid tax shown on the return filed;
  21. Tax due shown on the assessment notice and letter of demand, excluding surcharge, interest and suggested compromise penalty;
  22. Unpaid second installment of income tax due per return filed; and
  23. Amount of dishonored check.

 

[1] The collection techniques discussed in this chapter is drawn basically from the provisions of the National Internal Revenue Code (NIRC) of 1997, as amended, specifically Title VIII- (Remedies) and relevant revenue issuances. Some procedures are based on best practices of the implementing units while others are new and improved procedures.