Issuance of A New Letter of Authority for Substitute Revenue Officers
By Ellaine Anne Bernardino on January 20, 2022
A Letter of authority (LoA) issued by the Bureau of Internal Revenue (BIR) empowers a revenue officer (RO) to examine the books of accounts and other accounting records of a taxpayer for the purpose of collecting the correct taxes. The BIR’s practice of issuing memorandums of assignment or similar documents for the substitution of ROs, however, has been a recurring issue in a long line of Court of Tax Appeals (CTA) cases.
The Supreme Court resolved the matter last year in a decision penned by Associate Justice Jhosep Lopez. The court, in the case of Commissioner of Internal Revenue (CIR) vs Mcdonald’s Philippines Realty Corp. (G.R. 242670, May 10, 2021), confirmed that for a BIR audit to be valid, a separate or amended LoA should be issued in order to replace an RO originally named in a prior LoA. This was upheld in the recent case of Tann Philippines Inc. vs CIR (CTA Case 9820, Dec. 16, 2021).
In the Mcdonald’s case, the BIR originally issued an LoA to several ROs including to Eulema Demadura. Subsequently, the BIR issued a referral memorandum to transfer the assignment to RO Rona Marcellano to continue the audit. However, no new LoA was issued in the name of Marcellano. Neither was the previously issued LoA amended or modified to include the name of Marcellano.
The CIR argued that once an LoA had been issued, the RO originally named may be substituted or replaced without the need to amend the said LoA or to issue a separate and new one in the name of the substitute or replacement RO.
The Supreme Court ruled, however, that the issuance of an LoA prior to examination and assessment is a requirement of due process and not a mere formality or technicality. The taxpayer has the right to know the ROs who are duly authorized to conduct the audit. Hence, it is a jurisdictional requirement for LoAs to contain the names of the authorized ROs for a valid tax assessment.
Revenue Memorandum Order 43-90, which lays down the guidelines for the audit/investigation and issuance of LoAs, expressly and specifically requires the issuance of a new LoA if the ROs are reassigned or transferred. It also expressly provides that in case of reassignment or transfer of cases to another RO, a new LoA must be issued with the corresponding notation thereto.
Moreover, while it is true that the service of a copy of a memorandum of assignment, referral memorandum, or such other equivalent internal BIR document may notify the taxpayer of the fact of reassignment and transfer of cases of ROs, it does not prove the existence of authority of the substitute or replacement RO. The said documents that are issued by a revenue district officer or other subordinate officials and not by the CIR or his duly authorized representative do not vest upon an RO the required authority to examine a taxpayer’s books.
The Supreme Court further ruled that “the practice of reassigning or transferring revenue officers, who are the originally authorized officers named in the LoA and subsequently substituting them with new revenue officers who do not have a separate LoA issued in their name, is in effect a usurpation of the statutory power of the CIR or his duly authorized representative.” Hence, the use of such documents by an unauthorized revenue official supplants the functions of the LoA since it seeks to exercise a power that belongs exclusively to the CIR or his duly authorized representatives.
In the Tann Phils. case, the supposed authority of ROs to conduct the audit investigation was based merely on a memorandum of assignment and not on an LoA. The CTA, citing the Mcdonald’s case, ruled that because of the absence of a validly issued LoA, the tax assessment issued by the BIR against the taxpayer was void.
In view of the court’s judgment in the Mcdonald’s and Tann Phils. cases, it is clear that the BIR cannot merely reassign or transfer the authority to conduct an audit to another RO without a validly issued LoA in favor of the substitute RO.
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Ellaine Anne L. Bernardino is a junior associate of Mata-Perez, Tamayo & Francisco (MTF Counsel).