Abatement, compromise applicants need to pay basic tax first

BY JUDY T. GULANE, BusinessWorld Senior Reporter Taxpayers Seeking to reduce their liabilities under two mechanisms provided by the tax code —; abatement and compromise —; must be ready to pay even before their applications will be processed. The Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Order (RMO) 20-2007, dated last Aug. 13 and signed by BIR officer-in-charge Lilian B. Hefti, that specifies that taxpayers must pay the basic tax assessed, in case of abatement, and the compromise offer, in case of compromise, before their applications can even be "initially processed." In case the applications are disapproved, the "payments shall be treated as partial or installment payments of the assessments." An assessment, issued by the tax bureau after an audit, indicates a taxpayer’s tax deficiency. In black and white Nelson M. Aspe, deputy commissioner for operations and bureau spokesman, clarified that the requirement set in RMO 20-2007 is not new, since payments have always been prerequisite to applications’ processing. The bureau this time, he said, just wants to set this requirement "in black and white." "We are making it clear to taxpayers that they must be ready to pay [if they want to apply for abatement or compromise]," he added. The tax code authorizes the internal revenue commissioner to strike a compromise if there is reasonable doubt on the validity of the claim against the taxpayer, or if the financial position of the taxpayer demonstrates clear inability to pay the assessed tax. The minimum compromise rate is 40% of the basic assessed tax, except in cases where a taxpayer is unable to pay the assessed tax —; in which case the minimum rate applied is 10% of the basic assessed tax. The tax code also allows the commissioner to abate or cancel tax liabilities if the tax appears to be unjustly or excessively assessed or if the tax bureau’s administration or collection costs do not justify the collection of the amount due. Abatement usually covers the cancellation of surcharges, interests and compromise penalties and not the basic assessed tax. RMO 20-2007 also details the process by which abatement or compromise applications are processed. In case of abatement, the revenue district offices or the investigating offices of the Large Taxpayers Service shall receive the applications and supporting documents, make an evaluation and draft the reports containing their recommendations. The reports will be submitted to technical working committees, which will then review these reports and prepare the final recommendations for approval to the commissioner. In case of compromise, applications are to be submitted to the revenue district offices and investigating offices of the Large Taxpayers Service, which will then evaluate these applications and forward their recommendations to the technical working committees. These committees prepare the final recommendations for approval to either the Regional Evaluation Board, National Evaluation Board or the commissioner. The regional board handles cases involving tax assessments amounting to P500,000 or less; and the national board, cases where the basic tax exceeds P1 million or where the settlement offered is less than the prescribed minimums of either 40% or 10%. The commissioner handles the other cases. RMO 20-2007 directs the revenue district officers and the heads of the investigating offices of the Large Taxpayers Service to "require" applicant taxpayers to pay first before making an initial processing.