December 16, 2002

REVENUE REGULATIONS NO. 30-02

SUBJECT : Revenue Regulations Implementing Sections 7(c), 204(A) and 290

of the National Internal Revenue Code of 1997 on Compromise Settlement of Internal
Revenue Tax Liabilities Superseding Revenue Regulations Nos. 6-2000 and 7-2001

TO : All Internal Revenue Officers and Others Concerned

SECTION 1. Scope and Objectives. Pursuant to Section 244 of the National Internal
Revenue Code of 1997 (Code), these Regulations are hereby promulgated for the
purpose of implementing Sections 7(c), 204(A) and 290 of the same Code, superseding
Revenue Regulations (RR) Nos. 6-2000 and 7-2001 and giving an authority to the
Commissioner of Internal Revenue to compromise the payment of internal revenue tax
liabilities of certain taxpayers with outstanding receivable accounts and disputed
assessments with the Bureau of Internal Revenue and the Courts.

SECTION 2. Cases which may be Compromised. The following cases may, upon
taxpayer's compliance with the basis set forth under Section 3 of these Regulations, be
the subject matter of compromise settlement, viz.:

1. Delinquent accounts;

2. Cases under administrative protest after issuance of the Final Assessment Notice
to the taxpayer which are still pending in the Regional Offices, Revenue District Offices,
Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service
and other offices in the National Office;

3. Civil tax cases being disputed before the courts;

4. Collection cases filed in courts;

5. Criminal violations, other than those already filed in court or those involving
criminal tax fraud.

EXCEPTIONS:

1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law

that cast doubt on the taxpayer's obligation to withhold;

2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal

Revenue or his duly authorized representative;

3. Criminal violations already filed in court;

4. Delinquent accounts with duly approved schedule of installment payments;

5. Cases where final reports of reinvestigation or reconsideration have been issued

resulting to reduction in the original assessment and the taxpayer is agreeable to such
decision by signing the required agreement form for the purpose. On the other hand,
other protested cases shall be handled by the Regional Evaluation Board (REB) or the
National Evaluation Board (NEB) on a case to case basis;

6. Cases which become final and executory after final judgment of a court, where
compromise is requested on the ground of doubtful validity of the assessment; and

7. Estate tax cases where compromise is requested on the ground of financial

incapacity of the taxpayer.

SECTION 3. Basis For Acceptance of Compromise Settlement. The Commissioner

may compromise the payment of any internal revenue tax on the following grounds:

1. Doubtful validity of the assessment. The offer to compromise a delinquent

account or disputed assessment under these Regulations on the ground of reasonable
doubt as to the validity of the assessment may be accepted when it is shown that:

(a) The delinquent account or disputed assessment is one resulting from a jeopardy
assessment (For this purpose, "jeopardy assessment" shall refer to a tax assessment
which was assessed without the benefit of complete or partial audit by an authorized
revenue officer, who has reason to believe that the assessment and collection of a
deficiency tax will be jeopardized by delay because of the taxpayer's failure to comply
with the audit and investigation requirements to present his books of accounts and/or
pertinent records, or to substantiate all or any of the deductions, exemptions, or credits
claimed in his return); or

(b) The assessment seems to be arbitrary in nature, appearing to be based on

presumptions and there is reason to believe that it is looking in legal and/or factual
basis; or

(c) The taxpayer failed to file an administrative protest on account of the alleged
failure to receive notice of assessment and there is reason to believe that the
assessment is lacking in legal and/or factual basis; or

(d) The taxpayer failed to file a request for reinvestigation/reconsideration within 30

days from receipt of final assessment notice and there is reason to believe that the
assessment is lacking in legal and/or factual basis; or

(e) The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse
decision of the Commissioner, or his authorized representative, in some cases, within
30 days from receipt thereof and there is reason to believe that the assessment is
lacking in legal and/or factual basis; or

(f) The assessments were issued on or after January 1, 1998, where the demand
notice allegedly failed to comply with the formalities prescribed under Sec. 228 of the
National Internal Revenue Code of 1997; or

(g) Assessments made based on the "Best Evidence Obtainable Rule" and there is
reason to believe that the same can be disputed by sufficient and competent evidence;
or

(h) The assessment was issued within the prescriptive period for assessment as
extended by the taxpayer's execution of Waiver of the Statute of Limitations the validity
or authenticity of which is being questioned or at issue and there is strong reason to
believe and evidence to prove that it is not authentic.

(i) The assessment is based on an issue where a court of competent

jurisdiction made an adverse decision against the Bureau, but for which the
Supreme Court has not decided upon with finality. (As Amended by RR 8-2004, 19
May 2004)

2. Financial Incapacity. The offer to compromise based on financial incapacity

may be accepted upon showing that:

(a) The corporation ceased operation or is already dissolved. Provided, that tax
liabilities corresponding to the Subscription Receivable or Assets
distributed/distributable to the stockholders representing return of capital at the time of
cessation of operation or dissolution of business shall not be considered for
compromise; or

(b) The taxpayer, as reflected in its latest Balance Sheet supposed to be filed with
the Bureau of Internal Revenue, is suffering from surplus or earnings deficit resulting to
impairment in the original capital by at least 50%, provided that amounts payable or due
to stockholders other than business-related transactions which are properly includible in
the regular "accounts payable" are by fiction of law considered as part of capital and not
liability, and provided further that the taxpayer has no sufficient liquid asset to satisfy the
tax liability; or

(c) The taxpayer is suffering from a networth deficit (total liabilities exceed total
assets) computed by deducting total liabilities (net of deferred credits and amounts
payable to stockholders/owners reflected as liabilities, except business-related
transactions) from total assets (net of prepaid expenses, deferred charges, pre-
operating expenses, as well as appraisal increases in fixed assets), taken from the
latest audited financial statements, provided that in the case of an individual taxpayer,
he has no other leviable properties under the law other than his family home; or

(d) The taxpayer is a compensation income earner with no other source of income
and the family's gross monthly compensation income does not exceed the levels of
compensation income provided for under Sec. 4.1.1 of these Regulations, and it
appears that the taxpayer possesses no other leviable or distrainable assets, other than
his family home; or

(e) The taxpayer has been declared by any competent

tribunal/authority/body/government agency as bankrupt or insolvent.

The Commissioner shall not consider any offer for compromise settlement on the
ground of financial incapacity of a taxpayer with Tax Credit Certificate (TCC), issued
under the National Internal Revenue Code of 1997 or Executive Order No. 226, on hand
or in transit, or with pending claim for tax refund or tax credit with. the Bureau of Internal
Revenue, Department of Finance One-Stop-Shop Tax Credit and Duty Drawback
Center (Tax Revenue Group or Investment Incentive Group) and/or the courts, or with
existing finalized agreement or prospect of future agreement with any party that resulted
or could result to an increase in the equity of the taxpayer at the time of the offer for
compromise or at a definite future time. Moreover, no offer of compromise shall be
entertained unless and until the taxpayer waives in writing his privilege of the secrecy of
bank deposits under Republic Act No. 1405 or under other general or special laws, and
such waiver shall constitute as the authority of the Commissioner to inquire into the
bank deposits of the taxpayer.

Presence of circumstances that would place the taxpayer-applicant's inability to pay in

serious doubt can be a ground to deny the application for compromise based on
financial incapacity of the taxpayer to pay the tax.

SECTION 4. Prescribed Minimum Percentages of Compromise Settlement. The

compromise settlement of the internal revenue tax liabilities of taxpayers, reckoned on a
per tax type assessment basis, shall be subject to the following minimum rates based
on the basic assessed tax:

1. For cases of "financial incapacity"

1.1. If taxpayer is an individual whose only source of income is from employment and
whose monthly salary, if single, is P10,500 or less, or if married, whose salary together
with his spouse is P21,000 per month, or less, and it appears that the taxpayer
possesses no other leviable/distrainable assets, other than his family home 10%

1.2. If taxpayer is an individual without any source of income 10%

1.3. Where the taxpayer is under any of the following conditions:

1.3.1. Zero networth computed in accordance with Sec. 3.2(c) hereof 10%

1.3.2. Negative networth computed in accordance with Sec. 3.2(c) hereof 10%

1.3.3. Dissolved corporations 20%

1.3.4. Already non-operating companies for a period of:

(a) three (3) years or more as of the date of application for compromise
settlement 10%,

(b) Less than 3 years 20%

1.3.5. Surplus or earnings deficit resulting to impairment in the original capital by at

least 50% 40%

1.3.6 Declared insolvent or bankrupt, 20%

unless taxpayer falls squarely under any situation as discussed above, thus
resulting to the application of the appropriate rate.

2 For cases of "doubtful validity" A minimum compromise rate equivalent to forty

percent (40%) of the basic assessed tax.

The taxpayer may, nevertheless, request for a compromise rate lower than
forty percent (40%): Provided, however, that he shall be required to submit his request
in writing stating therein the reasons, legal and/or factual, why he should be entitled to
such lower rate: Provided, further, that for applications of compromise settlement based
on doubtful validity of the assessment involving an offer lower than the minimum forty
percent (40%) compromise rate, the same shall be subject to the prior approval by the
NEB.

The herein prescribed minimum percentages shall likewise apply in compromise

settlement of assessments consisting solely of increments, i.e., surcharge, interest, etc.,
based on the total amount assessed.

SECTION 5. Documentary Requirements.

1. If the application for compromise is premised under Sec. 4.1.1 hereof, the
taxpayer-applicant shall submit with his application (a) a certification from his employer
on his prevailing monthly salary, including allowances; and (b) a sworn statement that
he has no other source of income other than from employment.
2. If the application is premised under Sec. 4.1.2 hereof, the taxpayer-applicant
shall submit with his application a sworn statement that he derives no income from any
source whatever.

3. If the application is premised under Sec. 4.1.3 hereof, a copy of the applicant's
latest audited financial statements or audited Account Information Form filed with the
BIR shall be submitted with the application. Nonetheless, for situation under Sec.
4.1.3.3 hereof, the "Notice of Dissolution" submitted to SEC or other similar or
equivalent document should likewise be submitted. For situation under Sec. 4.1.3.6, a
copy of the order declaring bankruptcy or insolvency shall be submitted.

In all cases of offer based on financial incapacity, Waiver of the Secrecy of Bank
Deposit under R.A. 1405 and Sworn Statement saying that he has no Tax Credit
Certificate (TCC) on hand or in transit or claim for tax refund or TCC under the National
Internal Revenue Code of 1997 and Executive Order No. 226 pending in any office shall
be submitted.

Moreover, additional requirements prescribed under the existing Revenue Memorandum

Order (RMO) shall still be complied with unless amended and/or expanded by an
amendatory RMO.

SECTION 6. Approval of Offer of Compromise. Except for offers of compromise

where the approval is delegated to the REB pursuant to the succeeding paragraph, all
compromise settlements within the jurisdiction of the National Office (NO) shall be
approved by a majority of all the members of the NEB composed of the Commissioner
and the four (4) Deputy Commissioners. All decisions of the NEB, granting the request
of the taxpayer or favorable to the taxpayer, shall have the concurrence of the
Commissioner.

Offers of compromise of assessments issued by the Regional Offices involving basic

deficiency taxes of Five Hundred Thousand Pesos (P500,000) or less and for minor
criminal violations discovered by the Regional and District Offices, shall be subject to
the approval by the Regional Evaluation Board (REB), comprised of the following
Officers of the Region:

Regional Director Chairman

Members:

Assistant Regional Director

Chief, Legal Division

Chief, Assessment Division

 Chief, Collection Division

Revenue District Officer having jurisdiction over the taxpayer-applicant

Provided, however, that if the offer of compromise is less than the prescribed rates set
forth in Sec. 4 hereof, the same shall always be subject to the approval of the NEB.

The compromise offer may be paid before or after the approval of the offer of
compromise by the Board (NEB or REB), at the option of the taxpayer. In case of
disapproval of compromise offer previously paid, the same shall be dealt with in
accordance with the prevailing procedures embodied in the Revenue Memorandum
Order issued for this purpose, including amendments thereto.

The compromise offer shall be paid by the taxpayer upon filing of the application
for compromise settlement. No application for compromise settlement shall be
processed without the full settlement of the offered amount. In case of
disapproval of the application for compromise settlement, the amount paid upon
filing of the aforesaid application shall be deducted from the total outstanding tax
liabilities. (As Amended by RR 9-2013, 10 May 2013)

SECTION 7. Report of the Commissioner on the Exercise of His Authority to

Compromise to the Congressional Oversight Committee. The Commissioner shall
submit to the Congressional Oversight Committee through the Chairmen of the
Committee on Ways and Means of both the Senate and House of Representatives,
every six (6) months of each calendar year, a report on the exercise of his powers to
compromise the tax liabilities of taxpayers. In this regard, the REB should submit to the
Commissioner all the necessary reports and data in due time for the latter to be able to
submit the required reports to the Congressional Oversight Committee.

SECTION 8. Repealing Clause. These Regulations supersede Revenue Regulations

No. 6-2000, and Revenue Regulations No. 7-2001. All other issuances inconsistent with
the provisions of these Regulations are hereby amended, modified or repealed
accordingly.

SECTION 9. Effectivity. The provisions of these Regulations shall take effect after
fifteen (15) days following publication in any newspaper of general circulation except for
cases the compromise of which have been confirmed by the Secretary of Finance in
which case these Regulations shall take effect immediately upon publication.

(SGD.) JOSE ISIDRO N. CAMACHO

Secretary of Finance

Recommending Approval:
(SGD.) GUILLERMO L. PARAYNO, JR.

Commissioner of Internal Revenue

April 1, 2014

REVENUE MEMORANDUM CIRCULAR NO. 034-14

SUBJECT : Clarification Regarding Doubtful Validity of Assessment Relative to

Its Application to the Provisions of Revenue Regulations No. 30-2002

TO : All Internal Revenue Officers and Others Concerned

This Circular is issued to clarify the rule on whether or not an assessment resulting from
jeopardy/arbitrary assessment or which was based on "best evidence obtainable"
method could be considered as a "doubtful assessment" contemplated in Section 3 of
Revenue Regulations No. 30-2002 in so far as compromise settlement application is
concerned.

Revenue Regulations No. 30-2002 cited two grounds wherein taxpayers could avail of
the compromise settlement pursuant to Section 204 (A) of the Tax Code, namely:
"financial incapacity" and "doubtful validity of the assessment". It was provided under
Section 3.1 of the aforesaid regulations that

"xxx xxx xxx

The offer to compromise a delinquent account or disputed assessment on the ground of

reasonable doubt as to the validity of the assessment may be accepted when it is
shown that:

(a) The delinquent account or disputed assessment is one resulting from a jeopardy
assessment (For this purpose, "jeopardy assessment" shall refer to a tax assessment
which was assessed without the benefit of complete or partial audit by an authorized
revenue officer, who has reason to believe that the assessment and collection of
deficiency tax will be jeopardized by delay because of the taxpayer's failure to comply
with the audit and investigation requirements to present his books of accounts and/or
pertinent records, or to substantiate all or any of the deductions, exemptions, or credits
claimed in his return); or
(b) The assessment seems to be arbitrary in nature, appearing to be based on
presumptions and there is reason to believe that it is lacking legal and/or factual basis;
or

xxx xxx xxx

(g) Assessments made based on the "Best Evidence Obtainable Rule" and there is
reason to believe that the same can be disputed by sufficient and competent evidence;
or

xxx xxx xxx"

It is, however, clarified that an assessment based on "Best Evidence Obtainable Rule"
should not be automatically considered as a doubtful assessment. Scrutiny as to the
surrounding circumstances that led to the issuance of such an assessment (e.g.,
assessments based on Revenue Memorandum Circular No. 23-2000 , RMC No. 99-
2010, etc.) should be thoroughly evaluated. The taxpayer's failure to present or submit
the required documents necessary to make the assessment of its tax liability makes it
incumbent to the Bureau to resort to the application of the best evidence obtainable
method to recover unpaid taxes due the government. Therefore, any assessment made
as a result thereof is presumed prima facie correct and sufficient for all legal purposes.

All revenue officials and employees are enjoined to give this Circular the most extensive
publicity as possible.

(SGD.) KIM S. JACINTO-HENARES

Commissioner

Bureau of Internal Revenue

NIRC:

SECTION 204. Authority of the Commissioner to Compromise, Abate and Refund

or Credit Taxes. The Commissioner may

(A) Compromise the payment of any internal revenue tax, when:

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or

(2) The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax.
The compromise settlement of any tax liability shall be subject to the following minimum
amounts:

For cases of financial incapacity, a minimum compromise rate equivalent to ten percent
(10%) of the basic assessed tax; and

For other cases, a minimum compromise rate equivalent to forty percent (40%) of the
basic assessed tax.

Where the basic tax involved exceeds One million pesos (P1,000,000) or where the
settlement offered is less than the prescribed minimum rates, the compromise shall be
subject to the approval of the Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy Commissioners.

xxx xxx xxx

SECTION 7. Authority of the Commissioner to Delegate Power. The

Commissioner may delegate the powers vested in him under the pertinent provisions of
this Code to any or such subordinate officials with the rank equivalent to a division chief
or higher, subject to such limitations and restrictions as may be imposed under rules
and regulations to be promulgated by the Secretary of Finance, upon recommendation
of the Commissioner: Provided, however, That the following powers of the
Commissioner shall not be delegated:

(a) The power to recommend the promulgation of rules and regulations by the Secretary
of Finance;

(b) The power to issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the Bureau;

(c) The power to compromise or abate, under Sec. 204(A) and (B) of this Code,
any tax liability: Provided, however, That assessments issued by the regional
offices involving basic deficiency taxes of Five hundred thousand pesos
(P500,000) or less, and minor criminal violations, as may be determined by rules and
regulations to be promulgated by the Secretary of Finance, upon recommendation of
the Commissioner, discovered by regional and district officials, may be compromised
by a regional evaluation board which shall be composed of the Regional Director
as Chairman, the Assistant Regional Director, the heads of the Legal, Assessment
and Collection Divisions and the Revenue District Officer having jurisdiction over
the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where
articles subject to excise tax are produced or kept.