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Best evidence obtainable rule on doubtful validity

assessment

AN assessment is the official action of an internal-revenue official in determining the amount of

tax due from a taxpayer. In the case of CIR v Pascor [Pacific Asia Overseas Shipping Corp.],
G.R. 128315, be collected without unnecessary hindrance.

In an assessment process, the Bureau of Internal Revenue (BIR) is given wide latitude in
accessing all relevant or material records and data in the person of the taxpayer concerned. It is
limitless on the type or form of the medium by which the record, subject to the order of the BIR,
is kept. The objective of the law is to enable June 29, 1999, the Supreme Court (SC) said an
assessment contains not only a computation of tax liabilities, but also a demand for payment
within a prescribed period. It also signals the time when penalties and interests begin to accrue
against the taxpayer. Tax assessments by tax examiners or revenue officials are presumed
correct and made in good faith. The reason for such presumption of correctness is based on the
lifeblood theory. In Commissioner v Algue Inc., GR 28896, February 17, 1988, the SC observed
that taxes are the lifeblood of the government and, thus, should the BIR to exhaust all possible
means to get the taxpayer’s records. In this age of information technology, there is no reason to
keep companies or taxpayers with computer-based, record-keeping capabilities away from the
scrutiny of the BIR. The standard should always be where it might shed light on the accuracy
and truthfulness of the taxpayer’s return. However, the best obtainable evidence does not
include mere photocopies of records or documents. Photocopies have no probative value, and
they are mere scraps of paper.

The presumptive sales method, provided under Section 6 of the National Internal Revenue
Code, authorizes the BIR to resort to other methods. This is consistent with the best evidence
obtainable rule. The failure of the taxpayer to present his or her books of accounts for
examination is one reason the commissioner of Internal Revenue may resort to her powers.
Best evidence obtainable rule refers to data, record, paper or document, or any other evidence
gathered by revenue officials from government offices, corporations, employees, tenants, clients
and other sources with whom the taxpayer had previous transactions or from whom he or she
received income, for the purpose of ascertaining that a report has been filed or, if there is such a
report filed, the same is not false, incomplete or erroneous. This power of the commissioner can
be invoked when there is reason to believe that the taxpayer is not declaring his or her correct
income, sales or receipts.

Among the grounds for the application of the best evidence obtainable rule are:

1. False report

2. Incomplete report

3. No report

4. Erroneous report

Note, though, that an assessment made, based on the best evidence obtainable rule, can be
the subject of a compromise settlement between the taxpayer and the tax authorities. In
accordance with Revenue Regulations 30-2002, there is reasonable doubt as to the validity of
an assessment made, based on the best evidence obtainable rule, and there is reason to
believe that the assessment can be disputed by sufficient and competent evidence. On this
basis, an offer to compromise the delinquent account or disputed assessment may be accepted.
An accepted offer of compromise grounded on doubtful validity of the assessment has a
minimum compromise rate equivalent to 40 percent of the basic assessed tax. This tax refers to
the basic deficiency tax of the taxpayer. A request for a compromise rate lower than 40 percent
may be made, provided that the taxpayer submits a written request stating the factual and legal
reasons he or she is entitled to the lower rate.

In the recent Revenue Memorandum Circular 34-2014, though, the commissioner clarified that
the assessment based on the best evidence obtainable rule should not automatically be
considered as a doubtful assessment, which is subject to the compromise of tax liability. The
compromise-settlement application should not be the rule. BIR officials are required to
thoroughly evaluate the circumstances of each case so as to maximize the collection of taxes.
An assessment based on the best evidence obtainable rule shall still be presumed correct and
sufficient for all legal purposes.

******

The author is a junior associate of Du-Baladad and Associates Law Offices, a member-firm of
the World Tax Services Alliance.

The article is for general information only, and is neither intended nor should be construed as a
substitute for tax, legal or financial advice on any specific matter. Applicability of this article to
any actual or particular tax or legal issue should be supported by a professional study or advice.
If you have comments or questions about the article, e-mail the author at
juanpaulo.nepomuceno@bdblaw.com.ph or call 403-2001, local 313.