Here is a comprehensive discussion on the topic of the suspension of the running of the statute of limitations as it relates to the issuance of a Formal Letter of Demand (FLD) or Final Assessment Notice (FAN) under the National Internal Revenue Code of 1997 (NIRC), as amended by the TRAIN Law (R.A. No. 10963) and the Ease of Paying Taxes Act (R.A. No. 11976).

1. Overview of the Assessment Process and Statute of Limitations in Philippine Taxation Law

The statute of limitations, or prescriptive period, in taxation law limits the time during which the Bureau of Internal Revenue (BIR) can assess or collect taxes. Under the NIRC, as amended, the general rule is that the BIR has three (3) years from the last day for filing the return or the actual filing date, whichever is later, to issue an assessment. However, this prescriptive period may be extended or suspended under certain conditions.

The issuance of a Formal Letter of Demand (FLD) and Final Assessment Notice (FAN) represents the culmination of the BIR’s assessment process, where the taxpayer is formally informed of the amount of deficiency taxes due. The proper issuance of these documents is essential as it serves to stop the running of the prescription period and allow the BIR to continue enforcing its assessment within the legal time frame.

2. Grounds for Suspension of the Statute of Limitations (Section 223, NIRC, as amended)

The NIRC provides specific grounds for suspending the running of the statute of limitations on assessment and collection. The suspension prevents the expiration of the period within which the BIR may issue an assessment. The relevant grounds for suspension are:

When the taxpayer voluntarily waives the statute of limitations.
- Taxpayers may waive the statute of limitations by signing a waiver in favor of the BIR, allowing the agency more time to conduct its assessment. Waivers must comply strictly with BIR Revenue Memorandum Order No. 20-90, requiring:
  - A written waiver indicating the specific period of extension.
  - The taxpayer’s and BIR’s representative signatures.
  - Proper acknowledgment and notarization.
- Any deficiency in form or procedure of the waiver invalidates it, and thus, does not validly suspend the running of the statute.
When a request for reinvestigation is made by the taxpayer.
- A taxpayer's request for reinvestigation, if accepted by the BIR, suspends the statute of limitations until the BIR completes its reinvestigation and notifies the taxpayer in writing of its findings. This suspension applies only if the reinvestigation is expressly requested by the taxpayer in writing.
When the taxpayer cannot be located in the address of record.
- If the BIR cannot locate the taxpayer at the address indicated on the tax return or registration, the prescriptive period is suspended. However, the BIR must document its reasonable efforts to locate the taxpayer to avail of this ground for suspension.
When the taxpayer is outside the Philippines.
- The statute of limitations is suspended while the taxpayer is outside the Philippines, provided that their absence affects the assessment process. This typically applies to individual taxpayers rather than corporations.
Filing of a criminal complaint before the DOJ or courts.
- The filing of a criminal complaint with the Department of Justice (DOJ) or courts for tax evasion suspends the running of the statute of limitations on assessment and collection, pursuant to the NIRC provisions and recent amendments under R.A. No. 11976. This ensures the BIR can pursue criminal prosecution without losing the ability to assess or collect tax deficiencies.

3. Issuance of the Formal Letter of Demand (FLD) and Final Assessment Notice (FAN)

The issuance of an FLD/FAN signifies the BIR’s determination of a taxpayer’s deficiency and demands payment. The date of issuance is critical because it generally stops the running of the statute of limitations, provided it is issued within the prescribed period.

The FLD details the deficiency taxes and penalties, while the FAN is the official notice requiring the taxpayer to settle the identified liabilities. For these to be effective:
- They must be served on or before the expiration of the prescriptive period.
- They must be properly addressed to the taxpayer’s registered address, as errors or omissions can render the assessment void.

The BIR is obliged to follow due process by:

Providing the taxpayer with preliminary assessment notices (PAN) and opportunities to respond before the issuance of the FAN.
Ensuring the FLD/FAN is clear, specific, and accompanied by a detailed schedule of assessments to avoid questions of validity or nullity.

4. Effects of Suspension on Issuance of the FLD/FAN

If any of the grounds for suspension occur during the period when the BIR is conducting its investigation or issuance process, the three-year prescriptive period will not lapse until the suspension condition ceases.

For example: If a taxpayer requests a reinvestigation one (1) year after filing the return, and the BIR takes six (6) months to complete it, the statute of limitations will be suspended for those six (6) months. The BIR will then have two (2) years and six (6) months from the end of the reinvestigation to issue the FLD/FAN.

5. Relevant Jurisprudence on Suspension of the Statute of Limitations

The Philippine Supreme Court has ruled extensively on the suspension of the statute of limitations, particularly focusing on compliance with procedural rules for valid waivers and the effects of failure to follow the correct procedures. Key rulings include:

CIR v. Philippine Daily Inquirer, Inc. (2018):
- The Court ruled that an invalid waiver due to failure to conform to procedural requirements would not suspend the statute of limitations, thus barring the BIR from issuing assessments beyond the prescriptive period.
CIR v. Kudos Metal Corp. (2009):
- The Supreme Court ruled that a taxpayer’s voluntary request for reinvestigation suspends the running of the statute, preventing the BIR from losing its right to assess.
CIR v. BF Goodrich (2009):
- The Supreme Court reiterated that waivers must be signed by an authorized official of the BIR and taxpayer and properly notarized, underscoring the procedural necessity for effective suspension.

6. Recent Amendments under R.A. No. 11976 or the Ease of Paying Taxes Act

The Ease of Paying Taxes Act introduced enhancements to the procedural framework, emphasizing taxpayers' rights to fair treatment and efficient resolution processes within the BIR. However, it maintained the previous framework for suspending the statute of limitations and did not substantially alter the fundamental rules regarding FLD/FAN issuance and the statute's suspension.

Conclusion

The suspension of the statute of limitations is crucial to both the BIR and taxpayers, balancing the government’s authority to collect taxes with taxpayers’ rights to a clear and timely process. Strict adherence to procedural requirements is essential, as lapses can invalidate waivers and reinvestigation requests, preventing suspension of the prescriptive period. Thus, both the BIR and taxpayers must carefully navigate these rules to ensure compliance and the validity of assessments.