OUR National Internal Revenue Code, as amended (Tax Code), empowers the Commissioner of Internal Revenue (CIR) to conduct an assessment of the taxes paid by a taxpayer through the CIR’s duly authorized representative armed with a validly issued Letter of Authority (LOA). The Supreme Court has consistently ruled that an assessment conducted without a valid LOA is void (Medicard Philippines Inc. v. CIR, GR 222743, April 5, 2017). In this regard, Section 13 of the Tax Code provides that a revenue officer (RO) assigned to perform assessment functions may, pursuant to a LOA issued by the revenue regional director, examine taxpayers within the district’s jurisdiction in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due.
A LOA is issued before an audit is commenced; it should also be issued when the RO assigned is transferred to another district office. In several decisions, the Supreme Court has held that the Bureau of Internal Revenue’s (BIR) practice of reassigning ROs to continue a pending audit investigation without issuing a new LOA violates the taxpayer’s right to due process. Thus, in the case of CIR v. McDonald’s Philippines Realty Corp. (GR 242670, May 10, 2021), the Supreme Court held that the reassignment of the RO through a mere referral memorandum during the audit period before the BIR issued the Final Assessment Notice (FAN) is invalid. Also, in the case of Republic of the Philippines v. Robiegie, (GR 260261, Oct. 3, 2022), the Supreme Court invalidated the assessment when the reassignment was done before the issuance of the Preliminary Assessment Notice (PAN).
However, in the recent case of CIR v. Rieckermann Philippines Inc. (CTA EB 2704, May 13, 2024), the Court of Tax Appeals (CTA) en banc held that a LOA is no longer required in the reassignment of ROs occurring after the issuance of the FAN to the taxpayer. In this case, in its protest to the FAN, the taxpayer requested for a reinvestigation of the assessment. In the course of the reinvestigation, the revenue district officer issued a Tax Verification Notice and Memorandum of Assignment reassigning the case from the originally authorized RO to two new ROs, since the previously assigned RO was transferred to another district office. At that point, the BIR was constrained to conduct a reinvestigation, pursuant to the taxpayer’s request and for it to be able to issue a Final Decision on the Disputed Assessment (FDDA) to resolve the said protest.
In explaining that a new LOA is not required in the reassignment of ROs after issuance of the FDDA, the CTA en banc in Rieckermann held that the LOA is mandatory only during the conduct of an audit of the taxpayer’s books and accounts for the purpose of recommending the issuance of a PAN and FAN, but not for purpose of conducting a reinvestigation pursuant to taxpayer’s protest to the FAN.
It should be noted that, in the earlier decision of Bonifacio Corp. v. CIR (CTA Case 9068, April 19, 2018), the CTA (Third Division) invalidated the reassignment of ROs which was made through a Memorandum of Assignment instead of a LOA, despite that the reassignment was made after the taxpayer filed a protest letter requesting for reinvestigation of the FAN. Like the case of Rieckermann, the reassignment in this case was also necessary for the BIR to resolve the taxpayer’s protest.
In ruling so, the CTA Division in Bonifacio cited Section 13 of the Tax Code and jurisprudence which provides that the authority of the RO assigned to perform assessment functions should be in the form of a LOA. In this case, the CTA Division held that it is the LOA which empowers the RO to examine the books of account of a taxpayer to collect the correct amount of tax. Thus, because no LOA was issued for the reassignment, the assessments in the Bonifacio case were rendered void.
In conclusion, because of its pronouncement in Rieckermann, the CTA en banc held that no new LOA needs to be issued when the reassignment of ROs occur after the taxpayer has filed its protest to the FAN, and the examination by the ROs is pursuant to the taxpayer’s request for a reinvestigation.
Raida Argeli Grefiel is an associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at [email protected] or visit MTF website at www.mtfcounsel.com.
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