InTAX: June 2022 Issue 2 | Volume 1

Court of Tax Appeals

The Court of Tax Appeals (CTA) En Banc ruled that the following:

A Memorandum of Assignment (MOA) cannot be a substitute for a valid Letter of Authority (LOA). Unlike a LOA which is a special authority granted to a particular revenue officer, a MOA does not emphasize that the new set of revenue officers who will pursue the audit are properly authorized to do so. It simply notifies a taxpayer of the transfer of an audit/investigation to another set of revenue officers.

It has likewise ruled that a LOA does not take a particular form. Any document may qualify as a LOA provided that an essential requisite is present – the LOA must be issued either by the Commissioner of Internal Revenue (CIR) or by his duly authorized representative. (CIR vs First Life Financial Co., Inc., CTA Case EB No. 2263, 3 February 2022.)

A Referral Memorandum is not equivalent to a LOA when such will refer the continuance of the audit/investigation to a new set of revenue officers nor to a situation where the revenue officer named in the original LOA will just continue the audit/ investigation without the other revenue officers named therein. As the LOA commences the audit process and informs the taxpayer that it is under audit for possible deficiency tax assessment, there must be a grant of authority before any revenue officer can conduct an examination or assessment. In the absence of such authority, the assessment or examination is a nullity. The words "transfer of cases to another revenue officer" suggests quite plainly that a new set of revenue officers will continue the audit/investigation of the taxpayer's records, hence, necessitating the issuance of a new LOA. (CIR vs. Market Strategic Firm, Inc. CTA EB No. 2281, 9 February 2022)

Strict adherence to the schedule of penalties listed under Revenue Memorandum Order (RMO) No. 19-2007** is required to determine the legality of compromise penalties. RMO No. 19-2007, dated 8 August 2007, otherwise known as “The Consolidated Revised Schedule of Compromise Penalties for Violations of the National Internal Code”, is controlling in determining the legality of the penalties imposed on taxpayers. There are only two exceptions when the penalties may differ from the said schedule: (1) when a compromise offer is lower than what is provided in the said schedule, there must be an approval from the CIR, or concerned Deputy Commissioner/Assistant Commissioner/Regional Director; and (2) when a compromise offer is higher than those penalties, the offer must be in writing and if there is an Apprehension Slip, the form provided in Annex B of RMO No. 19-2007 shall be used. In all cases, all amounts of compromise penalties incident to violations shall be itemized in an assessment notice and/or demand letter, and if the compromise offer is higher, then all offers must be in writing. (CIR vs. Dunlevy Food Corporation, CTA EB No. 2294, 8 February 2022.)

** As amended by RMO No. 7-2015, dated 23 March 2015.

Attached are the full texts of the decisions.

CTA_EB_CV_02263_D_2022FEB03_ASS

CTA_EB_CV_02281_D_2022FEB09_ASS

CTA_EB_CV_02294_D_2022FEB08_REF