October 23, 2018

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Revenue Region No. 4 San Fernando City, Pampanga

Atty. Jethro M. Sabariaga

OIC – Regional Director
Revenue Region No. 4 San Fernando City, Pampanga
BIR Bldg., McArthur Hi-way, Sindalan, City of San Fernando, Pampanga 2000

REQUEST FOR REINVESTIGATION

Sir:

This has reference to your Formal Letter of Demand and Final Assessment Notice
(“FLD/FAN” for brevity) dated September 3, 2018 (hereto attached as Annex “A”, forming
an integral part hereof). Said FLD/FAN was received on September 26, 2018 through
personal delivery by Revenue Officer Milca C. Matute (“RO Milca” for brevity) in my
registered address at No. 2- 9th Street, East Tapinac, Olongapo City. Pursuant to the
provisions of Section 228 of 1997 Tax Code, as amended, in relation to provisions of RR 12-
19991, as amended, I respectfully offer this written protest in the nature of request for
reinvestigation.

Annex A of FLD/FAN provides the following pertinent details of discrepancies for

resolution of your good office:

Undeclared Revenues:
Beach Bosses, Inc. ₱68,143.31
Regina Tan 900.00
Total ₱69,043.31
Minus OSD 27,617.45
Net Tax Revenues ₱41,425.86

Taxable Compensation Income:

1
Implementing the Provisions of National Internal Revenue Code of 1997 Governing the Rules on
Assessment of National Internal Revenue Taxes, Civil Penalties and Interest and the Extra-judicial
Settlement of a Taxpayer’s Criminal Violation of the Code Through Payment of a Suggested
Compromise Penalty
Non-Taxable Compensation per ITR ₱209,489.00
Less: Non-Taxable/Exempt Compensation per BIR Form 2316 78,796.25
Taxable Compensation Income ₱130,692.75

As to above-mentioned Undeclared Revenues, I respectfully disagree. This

assessment lacks factual and legal basis.

I have never realized, earned, and received the alleged undeclared revenues in the
amount of ₱68,143.31 from company Beach Bosses, Inc. While it is true that I rendered
professional services in this company, the correct amount of professional fees I realized,
earned, and received is ₱57,643.31 only.

BIR Form 2307 Certificate of Creditable Tax Withheld at Source (hereto attached as
Annex “B”, forming an integral part hereof) from Beach Bosses, Inc., signed by its
authorized representative Ms. Liza E. Emperial, shows gross professional fees I realized,
earned and received in the amount of ₱57,643.31 only covering taxable period from January
1, 2017 to December 31, 2017.

Furthermore, Official Receipts No. 0020 issued to Beach Bosses, Inc. dated
December 31, 2017(hereto attached as Annex “C”, forming an integral part hereof), shows
gross professional fees realized and earned in the amount of ₱57,643.31; creditable
withholding tax ₱5,764.33; and net amount received ₱51,878.98.

Finally, Certification dated October 22, 2018 signed by Ms. Kris Sangalang,
Accounting Officer of Beach Bosses, Inc., (hereto attached as Annex “D”, forming an
integral part hereof) from Beach Bosses, Inc. certifying and evidencing the only amount of
gross professional fees I realized, earned, and received in the amount of ₱57,643.31 only
covering taxable period from January 1, 2017 to December 31, 2017.

In Commissioner of Internal Revenue v. Court of Appeals 2, the Supreme Court has

an opportunity to define the three elements in the imposition of income tax as follows:

“The three elements in the imposition of income tax are:

(1) There must be gained or profit;

(2) That the gain or profit is realized or received, actually or constructively; and
(3) It is not exempted by law or treaty from income tax.

Any business purpose as to why or how the income was earned by the taxpayer is
not a requirement. Income tax is assessed on income received from any property,
activity or service that produces the income because the Tax Code stands as an
indifferent neutral party on the matter of where income comes from.” (Emphasis and
Italic supplied)
Based on the above-quoted provisions of jurisprudence, it is clear that in order for
income to be taxable, (1) there must be gain, and (2) the gain must be realized or
2
G.R. No. 108576, 20 January 1999
received. Considering the absence of the first two (2) requisites of taxability of an income,
this Undeclared Revenues cannot be imposed, assessed, and collected, because I did not
earn, realize and receive the alleged Undeclared Revenues from Beach Bosses, Inc. in the
amount of ₱68,143.31. This assessment lacks factual and legal basis and is therefore
inescapably null and void.

As to above-mentioned Taxable Compensation Income, I respectfully disagree.

This assessment lacks factual and legal basis.

I am currently employed in our corporate company Ladderized CPA Review Center,

Inc. (“LCPAR” for brevity) as minimum wage earner employee. The term ‘minimum wage
earner’ shall refer to a worker in the private sector paid the statutory minimum wage in the
non-agricultural sector where he/she is assigned3. Minimum wage earners as defined in
Section 22(HH) of this Code shall be exempt from the payment of income tax on their
taxable income: provided, further, that the holiday pay, overtime pay, night shift differential
pay and hazard pay received by such minimum wage earners shall likewise be exempt from
income tax4.

BIR Form 2316 Certificate of Compensation Payment/Tax Withheld (hereto attached

as Annex “E”, forming an integral part hereof), which I received from my employer, shows
the following composition of Non-Taxable/Exempt Compensation Income:

Part IV-B

A. Non-Non-Taxable/Exempt Compensation Income

Item No. 32 Basic Salary/Statutory Minimum Wage

Minimum Wage Earner ₱130,693.00

Item No. 33 Holiday Pay (MWE) -

Item No. 34 Overtime Pay (MWE) -

Item No. 35 Night Shift Differential (MWE) -

Item No. 36 Hazard Pay (MWE) -

Item No. 37 13th Month Pay and Other Benefits -

Item No. 38 De Minimis Benefits 76,396.25

Item No. 39 SSS, GSIS, PHIC & Pag-ibig

Contributions & Union Dues
(Employee Share Only) 2,400.00
3
Sec. 22 (HH) of 1997 Tax Code, as amended
4
Sec. 24 (A) (2) of 1997 Tax Code, as amended
Item No. 40 Salaries and Other Forms of
Compensation -
__________
Total Non-Non-Taxable/Exempt Compensation Income ₱209,489.25

The alleged taxable compensation Income in FLD/FAN in the amount of ₱130,692.75

refers to my basic statutory minimum wage and should not be subject to income tax
pursuant to the provision of Section 24 (A) (2) of 1997 Tax Code, as amended, as quoted
above.

Furthermore, Certificate of Compensation dated October 22, 2018 (hereto attached

as Annex “F”, forming an integral part hereof) signed by an Accountant of LCPAR Ms.
Jonalyn A. Baleros certifying and evidencing non-taxability of compensation income I
earned, realized and received from my employer LCPAR. As such, it should not be subject
to income tax pursuant to the provisions of Section 24 (A) (2) of 1997 Tax Code, as
amended.

RR 2-19985, as amended, explicitly provides exemption of minimum wage earner

from income tax, to wit:

“Sec. 2.78.1. Withholding of Income Tax on Compensation.-

(B) Exemption from Withholding on Compensation. – The following income payments

are exempted from the requirements of withholding tax on compensation:

xxx xxx xxx

(13) Compensation Income of MWEs who work in the private sector and being paid
the Statutory Minimum Wage (SMW), as fixed by Regional Tripartite Wage and Productivity
Board (RTWPB)/ National Wage and Productivity Commission (NWPC), applicable to the
place where he/she is assigned.

The aforesaid income shall likewise be exempted from income tax.”

(Emphasis and italic supplied)

Finally, under the judicial ruling in Commissioner of Internal Revenue v. Court of

Appeals, the third element in the imposition of income tax was not satisfied since minimum
wage earner is exempted by law from income tax.
This assessment Taxable Compensation income in the amount of ₱130,692.75 lacks
factual and legal basis and is therefore inescapably null and void.

As to verbal contention of RO Milca and Group Supervisor Mercedita S. Medina

(“GS Mercedita” for brevity) that our company LCPAR failed to submit BIR form 1604-CF
5
Implementing Republic Act No. 8424, “An Act Amending The National Internal Revenue Code, as
amended” relative to the withholding Tax and Final Withholding Tax, Withholding of Income Tax on
Compensation, Withholding of Creditable Value-Added Tax and Other Percentage Taxes.
Annual Information Return of Income Taxes Withheld on Compensation and Final
Withholding Taxes, I respectfully disagree.

LCPAR successfully submitted on time BIR form 1604-CF Annual Information Return
of Income Taxes Withheld on Compensation and Final Withholding Taxes (hereto attached
as Annex “G”, forming an integral part hereof) dated January 3, 2018 with required
attachment eSubmission Validation Report (hereto attached as Annex “H”, forming an
integral part hereof) dated January 5, 2018.

Finally, as to your contention in your reply-letter (hereto attached as Annex “I”,

forming an integral part hereof) dated July 17, 2018, but was received only on August 24,
2018, denying my request to cancel and set aside Notice for Informal Conference (“NIC” for
brevity) and its attached Computation of Deficiency Taxes dated April 13, 2018 due to lack
of legal and factual basis, I respectfully disagree.

RAMO 1-20006, as amended, provides pertinent information regarding

communication to taxpayer who is subject to audit prior to issuance of NIC, to wit:

“XVI. Closing Conference

Essential to an effective audit of internal revenue tax liabilities is the holding of a

closing conference with the taxpayer before the preparation of the final report of
investigation by the Revenue Officer assigned to the tax case. During this time, the
Revenue Officer and his supervisor explain to the taxpayer how the assessment of his
tax liability was arrived at. If necessary, the records of the case shall be presented to the
taxpayer to document the Revenue Officer’s findings. The taxpayer shall then be allowed to
examine such records and to present his arguments. If the taxpayer agrees with the audit
findings, he shall be made to sign an Agreement Form. If not, the Revenue Officer shall give
the taxpayer enough time to document his objections to the proposed assessment. In both
cases, the report of investigation shall be prepared and submitted to the Revenue
District Officer for review and pre-approval prior to final review by the Assessment
Division of the Regional Office or by the concerned office in the National Office (NO)
for cases investigated by the audit divisions/teams in the NO.

Upon receipt of the report of investigation, the Revenue District Officer (RDO) or
head of the audit division/team in the NO shall send to the taxpayer a notice for informal
conference. The notice should be accompanied by a summary of the Revenue
Officer’s findings.

The notice shall be made in writing and sent to the taxpayer at the address
indicated in his return or his last known address. This notice, however, may be dispensed
with in case the taxpayer agrees in writing to the proposed assessment, or where such
proposed assessment has been paid.

6
Updated Handbook on Audit Procedures and Techniques Volume 1 (Revision – Year 2000)
 In case the taxpayer responds to the notice within the period prescribed in the
informal conference letter, he or his duly authorized representative shall again be allowed to
examine the records of the case and to present his arguments in writing protesting the
proposed assessment. Thereafter, the RDO or head of office/team shall, on the basis of the
evidence on record, decide whether or not to approve the report before forwarding it to the
Assessment Division or concerned office in the NO for approval and issuance of the
corresponding Termination Letter or Assessment Notice, as the case may be.

In the event the taxpayer fails to respond to the notice for informal conference within
the prescribed period, or when the response is found to be without merit, the report of the
investigation shall be given due course and shall be forwarded to the Assessment Division
or to the concerned office in the NO for review.”
(Emphasis and italic Supplied)

In relation to RAMO 1-2000, RR 12-1999, as amended, prescribes Due Process

Requirement in the Issuance of a Deficiency Assessment. Subsection 3.1.1 of RR 12-1999
prescribes mandatory issuance of NIC, to wit:

“3.1.1 Notice for Informal Conference. – The Revenue Officer who audited the
taxpayer’s records shall, among others, state in his report whether or not the
taxpayer agrees with his findings that the taxpayer is liable for deficiency tax
or taxes. If the taxpayer is not amendable, based on the said Officer’s submitted
report of investigation, the taxpayer shall be informed, in writing, by the Revenue
District Office or by the Special Investigation Division, as the case may be (in the
case of Revenue Regional Offices) or by the Chief of Division concerned (in the case
of the BIR National Office) of the discrepancy or discrepancies in the taxpayer’s
payment of his internal revenue taxes for the purpose of “Informal Conference,” in
order to afford the taxpayer with an opportunity to present his side of the case.

The Informal Conference shall in no case extend beyond thirty (30) days from
receipt of the notice for informal conference. If it is found that taxpayer is still liable
for deficiency tax or taxes after presenting his side, and the taxpayer is not
amendable, the Revenue District Officer of the Chief of the Special Investigation
Division of the Revenue Regional Office, or the Chief of Division in the National
Office, as the case may be, shall endorse the case within seven (7) days from the
conclusion of the Informal Conference to the Assessment Division of the Revenue
Regional Office or to the Commissioner or his duly authorized representative for
issuance of a deficiency tax assessment.

Failure on the part of Revenue Officers to comply with the periods indicated
herein shall be meted with penalty as provided by existing laws, rules and
regulations.”
(Emphasis, italic, and underscoring supplied)
 Perusal of the above-quoted provisions of RAMO 1-2000 and RR 12-1999, there are
three (3) required steps in closing conference, namely:

1. A Closing Conference. This is a meeting between the subject taxpayer and

Revenue Officers (“RO” for brevity) assigned in the tax case before the
preparation of the final report of the investigation by RO. During this time, the
Revenue Officer and his supervisor explain to the taxpayer how the
assessment of his tax liability was arrived at7. Two (2) possible outcome may
arise after closing conference, to wit:

a) The taxpayer agrees with the audit findings, and he shall be made to sign
an Agreement Form.

b) The taxpayer does not agree with the audit findings, and the RO shall give
the taxpayer enough time to document his objections to the proposed
assessments.

2. Preparation of Report of Investigation. This shall be prepared and submitted

by RO to the Revenue District Officer for review and pre-approval prior to final
review by the Assessment Division of the Regional Office or by the concerned
office in the National Office (NO) for cases investigated by the audit
divisions/teams in the NO.
3. Service of NIC. The Revenue District Officer (RDO) or head of the audit
division/team in the NO shall send to the taxpayer a notice for informal
conference. The notice should be accompanied by a summary of the
Revenue Officer’s findings.

RO Milca and GS Mercedita prepared and submitted Report of Investigation (“ROI”

for brevity) to Revenue District Officer Maria Thelma F. Pulhin (“RDO Pulhin” for brevity)
without holding a meeting with me as a taxpayer subject to an audit investigation through
Closing Conference. This should have been gave me a chance to explain my side of the
case prior to issuance of ROI by RO Milca and GS Mercedita to RDO Pulhin for the approval
of the issuance of NIC. These Revenue Officers, including Revenue District Officer, cannot
simply proceed to issuance of NIC without respecting provisions of the law- that is holding
of Closing Conference. Moreover, the attached Computation of Deficiency Taxes in NIC
lacks sufficient details on how RO Milca and GS Mercedita arrived at the computation. The
notice should be accompanied by a summary of the Revenue Officer’s findings 8, not a
mere detailed computation not supported by summary on how Revenue Officers arrived at
the computation. With all due respect Sir, how can a taxpayer prepare to explain his side of
the case if he/she did not know the basis of computation of deficiency taxes made by ROs?
It is to be emphasized that RAMO 1-2000 provides that NIC should be accompanied by a
summary of RO’s findings, not detailed computation of computation deficiency taxes. This is
to afford a taxpayer subject to audit investigation to prepare his/her arguments against audit
findings of ROs before actual closing conference.
7
RAMO 1-2000 XVI. Closing Conference
8
RAMO 1-2000 XVI. Closing Conference
 As to your contention that I admitted the fact that RO Milca explained the basis of the
computation of deficiency taxes through a phone call, I respectfully disagree.

For easy reference and guidelines, pertinent portion of the Letter of Protest in relation
to phone call conversation between me and RO Milca is reproduce as follows:

“The undersigned was not informed, except compensation income deficiency tax
through phone call made by RO Milca.”
(Emphasis, italic, and underscoring supplied)

Clearly, what was explained by RO Milca is not all deficiency taxes, but only
compensation income. I remember when RO Milca called me, she raised some questions
regarding my BIR Form 2316 and alleged failure of our company LCPAR to submit BIR Form
1604-CF for the taxable year 2017 that may potentially imposed penalties and deficiency
taxes to me. I told her that our company LCPAR has complied in the submission of BIR
Form 1604-CF covering taxable year 2017, and I am a minimum wage earner; therefore, I
am not subject to income tax. This phone call conversation did not include assessed
Undeclared Revenues per FLD/FAN.

As to your advice to me to appear before the Office of BIR RDO No. 18- Olongapo
City immediately upon receipt of your reply-letter for an informal conference, and failure to
do so should be considered as waiver of my right to appear for an informal conference, I
respectfully disagree.

Your reply-letter dated July 17, 2018 to my Letter of Protest dated May 24, 2018 was
received only on August 24, 2018. The NIC was received on April 25, 2018. The Preliminary
Assessment Notice was received on August 9, 2018. In conclusion, your advice is irrelevant
and useless because whether or not I appear before BIR RDO No. 18- Olongapo City, the
closing conference will lose its purpose. Accordingly, I chose not to appear.

In CIR vs. Metro Star Superama, Inc.9, the Honorable Supreme Court cited the
following pertinent provision:

“It is an elementary rule enshrined in the 1987 Constitution that no person shall be
deprived of property without due process of law.” (Emphasis and Italic Supplied)

The failure of RO Milca and GS Merecedita in the conduct of mandatory Closing

Conference pursuant to the provision of RAMO 1-2000, as amended, and RR 12-1999, as
amended, constitutes violations of taxpayer’s rights to due process and 1987 Constitution,
Article III, Section 1; consequently, the NIC and its attached Computation of Deficiency
Taxes are null and void.

9
G.R. No. 185371, December 8, 2010
 In order to support this written protest, all hereto attached annexes are relevant
supporting documentary requirements in compliance with the provisions of RR 12-1999, as
amended, and Section 228 of 1997 Tax Code, as amended.

In summary, the alleged assessment for Undeclared Revenues ₱68,143.31 lacks

factual and legal basis and is therefore inescapably null and void. The alleged assessment
for Taxable Compensation Income ₱130,692.75 lacks factual and legal basis and is
therefore inescapably null and void. The NIC and its attached computation of Deficiency
Taxes are null and void for being issued in violations of taxpayer’s rights to due process and
1987 Constitution, Article III, Section 1.

While I understand and appreciate the mandate of your office, it is nevertheless

taxpayer’s rights to file a written protest in compliance with the strict provisions of 1997 Tax
Code, as amended, in order to present my side of the tax case.

Mabuhay! Salamat po sa inyo! 

Kindly find below undersigned contact information:

RDO : 018 Olongapo City

ADD : No. 2- 9th Street, East Tapinac, Olongapo City 2200
CONTACT PERSON : Mr. Mark Lord M. Bumagat
CONTACT NO. : 09386067095

Anticipating for your favorable and usual prompt action. Thank you.

Very truly yours,

Mr. Mark Lord M. Bumagat

Taxpayer
No.2-9th Street, East Tapinac, Olongapo City