MEDICARD V.

CIR

An LOA is the authority given to the appropriate revenue officer assigned to perform assessment
functions. It empowers or enables said 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. An LOA is
premised on the fact that the examination of a taxpayer who has already filed his tax returns is a power
that statutorily belongs only o the CIR himself or his duly authorized representatives.

Based on the afore-quoted provision, it is clear that unless authorized by the CIR himself or by his duly
authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily. be
undertaken. The circumstances contemplated under Section 6 where the taxpayer may be assessed
through best-evidence obtainable, inventory-taking, or surveillance among others has nothing to do with
the LOA. These are simply methods of examining the taxpayer in order to arrive at the correct amount
of taxes. Hence, unless undertaken by the CIR himself or his duly authorized representatives, other tax
agents may not validly conduct any of these kinds of examinations without prior authority.

As provided in the RMO No. 42-2003, the Letter Notice (LN) is merely similar to a Notice for Informal
Conference. However, for a Notice of Informal Conference, which generally precedes the issuance of an
assessment notice to be valid, the same presupposes that the revenue officer who issued the same is
properly authorized in the first place.

The following differences between an LOA and LN are crucial:

Letter of Authority
1. An LOA addressed to a revenue officer is
specifically required under the NIRC
before an examination of a taxpayer may
be had.
2. An LOA is valid only for 30 days from date
of issue
3. An LOA gives the revenue officer only a
period of 120 days from receipt of LOA to
conduct his examination of the taxpayer.
Letter Notice
1. An LN is not found in the NIRC and is only
for the purpose of notifying the taxpayer
that a discrepancy is found based on the
BIR' s RELIEF System.
2. An LN has no such limitation.
3. An LN does not contain such a limitation.

Simply put, LN is entirely different. and serves a different purpose than an LOA. Due process demands, as
recognized under RMO No. 32-2005, that after an LN has serve its purpose, the revenue officer should
have properly secured an LOA before proceeding with the further examination and assessment of the
petitioner.

Unfortunately, this was not done in this case.

An LOA cannot be dispensed with just because none of the financial books or records being physically
kept by MEDICARD was examined. To begin with, Section 6 of the NIRC requires an authority from the
CIR or from his duly authorized representatives before an examination "of a taxpayer" may be made. The
requirement of authorization is therefore not dependent on whether the taxpayer may be required to
physically open his books and financial records but only on whether a taxpayer is being subject to
examination.
CIR v. DLSU

The relevant provision is Section C of RMO No. 43-90, the pertinent portion of which reads:

3. A Letter of Authority [LOA] should cover a taxable period not exceeding one taxable year. The practice
of issuing [LOAs] covering audit of unverified prior years is hereby prohibited. If the audit of a taxpayer
shall include more than one taxable period, the other periods or years shall be specifically indicated in
the [LOA].

What this provision clearly prohibits is the practice of issuing LOAs covering audit of unverified prior
years. RMO 43-90 does not say that a LOA which contains unverified prior years is void. It merely
prescribes that if the audit includes more than one taxable period, the other periods or years must be
specified. The provision read as a whole requires that if a taxpayer is audited for more than one taxable
year, the BIR must specify each taxable year or taxable period on separate LOAs.

Read in this light, the requirement to specify the taxable period covered by the LOA is simply to inform
the taxpayer of the extent of the audit and the scope of the revenue officer's authority. Without this
rule, a revenue officer can unduly burden the taxpayer by demanding random accounting records from
random unverified years, which may include documents from as far back as ten years in cases of fraud
audit.

In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years. The
LOA does not strictly comply with RMO 43-90 because it includes unverified prior years. This does not
mean, however, that the entire LOA is void.

As the CT A correctly held, the assessment for taxable year 2003 is valid because this taxable period is
specified in the LOA. DLSU was fully apprised that it was being audited for taxable year 2003. Corollarily,
the assessments for taxable years 2001 and 2002 are void for having been unspecified on separate LOAs
as required under RMO No. 43-90.

Lastly, the Commissioner's claim that DLSU failed to raise the issue of the LOA' s validity at the CT A
Division, and thus, should not have been entertained on appeal, is not accurate.

On the contrary, the CTA En Banc found that the issue of the LOA's validity came up during the trial. 100
DLSU then raised the issue in its memorandum and motion for partial reconsideration with the CTA
Division. DLSU raised it again on appeal to the CTA En Banc. Thus, the CTA En Banc could, as it did, pass
upon the validity of the LOA. Besides, the Commissioner had the opportunity to argue for the validity of
the LOA at the CT A En Banc but she chose not to file her comment and memorandum despite notice.
CIR v. Fitness by Design

An assessment "refers to the determination of amounts due from a person obligated to make payments.
In the context of national internal revenue collection, it refers to the determination of the taxes due from
a taxpayer under the National Internal Revenue Code of 1997.

A final assessment notice provides for the amount of tax due with a demand for payment. This is to
determine the amount of tax due to a taxpayer. However, due process requires that taxpayers be
informed in writing of the facts and law on which the assessment is based in order to aid the taxpayer in
making a reasonable protest. To immediately ensue with tax collection without initially substantiating a
valid assessment contravenes the principle in administrative investigations "that taxpayers should be
able to present their case and adduce supporting evidence."

If fraud was indeed present, the period of assessment should be within 10 years. It is incumbent upon
petitioner to clearly state the allegations of fraud committed by respondent to serve the purpose of an
assessment notice to aid respondent in filing an effective protest.

It is indispensable for the Commissioner of Internal Revenue to include the basis for its allegations of
fraud in the assessment notice.

The issuance of a valid formal assessment is a substantive prerequisite for collection of taxes. Neither the
National Internal Revenue Code nor the revenue regulations provide for a "specific definition or form of
an assessment." However, the National Internal Revenue Code defines its explicit functions and effects."
An assessment does not only include a computation of tax liabilities; it also includes a demand for
payment within a period prescribed. Its main purpose is to determine the amount that a taxpayer is
liable to pay.

A pre-assessment notice "does not bear the gravity of a formal assessment notice. A pre-assessment
notice merely gives a tip regarding the Bureau of Internal Revenue's findings against a taxpayer for an
informal conference or a clarificatory meeting.

A final assessment is a notice "to the effect that the amount therein stated is due as tax and a demand
for payment thereof." This demand for payment signals the time "when penalties and interests begin to
accrue against the taxpayer and enabling the latter to determine his remedies[.]" Thus, it must be "sent
to and received by the taxpayer, and must demand payment of the taxes described therein within a
specific period."

Compliance with Section 228 of the National Internal Revenue Code is a substantive requirement. It is
not a mere formality. Providing the taxpayer with the factual and legal bases for the assessment is crucial
before proceeding with tax collection. Tax collection should be premised on a valid assessment, which
would allow the taxpayer to present his or her case and produce evidence for substantiation.
Procedure of Assessment (Based on CIR v Fitness)
1. Filing of tax return and payment of tax by the taxpayer. The initial assessment evidence by the
tax return is a self-assessment of the taxpayer.
2. Commissioner or his or her representative may allow the examination of any taxpayer for
assessment of proper tax liability.
a. The failure of a taxpayer to file his or her return will not hinder the Commissioner from
permitting the taxpayer's examination.
b. The Commissioner can examine records or other data relevant to his or her inquiry in
order to verify the correctness of any return, or to make a return in case of
noncompliance, as well as to determine and collect tax liability.
3. The revenue officer endorses the case with the least possible delay to the Assessment Division of
the Revenue Regional Office or the Commissioner or his or her authorized representative.
a. The Assessment Division of the Revenue Regional Office or the Commissioner or his or
her authorized representative is responsible for the "appropriate review and issuance of
a deficiency tax assessment, if warranted."
4. If, after the review conducted, there exists sufficient basis to assess the taxpayer with deficiency
taxes, the officer 'shall issue a preliminary assessment notice showing in detail the facts,
jurisprudence, and law on which the assessment is based.
a. The taxpayer is given 15 days from receipt of the pre-assessment notice to respond.78 If
the taxpayer fails to respond, he or she will be considered in default, and a formal letter
of demand and assessment notice will be issued.
5. The formal letter of demand and assessment notice shall state the facts, jurisprudence, and law
on which the assessment was based; otherwise, these shall be void.
a. The taxpayer or the authorized representative may administratively protest the formal
letter of demand and assessment notice within 30 days from receipt of the notice.