Interest, Surcharge & Compromise Penalties Estelita C. Aguirre, CPA, MM Lecture No. 16

Title X Chapter I Additions to the Tax

Civil Penalties (Sec 248) 1. 25% surcharge of the amount due failure to pay the tax on time filing the return with the wrong venue failure to pay the deficiency tax within time prescribed for its payment 2. 50% surcharge of the amount due in case of willful neglect to file the return within the prescribed period in case a false or fraudulent return is willfully made

Interest (Sec 249) Interest at the rate of 20% per annum 1. Deficiency interest 2. Delinquency interest

Case 1: Late filing and late payment of tax Income tax return for CY2008 was due for filing on April 15, 2009 but taxpayer voluntarily filed and paid his tax return without notice from BIR, only on June 30, Tax due per return amounts to P100,000. Compute the amount due form the taxpayer.

Case 1 Solution Late filing and late payment of tax Income tax due per return P100,000 Add: 25% surcharge for late filing and late payment (25% of 100,000) 25,000 20% interest p.a. (4.1667% of P100,000) 4,167 Total amount due excluding suggested compromise for late filing and late payment. P129,167

Case 2: Filed on time at the wrong venue The tax return without prior authorization from the BIR Is filed on time but filed thru an internal revenue officer other than with whom the return is required to be filed The taxpayer’s 2008 ITR is required to be filed through the authorized agent bank under the jurisdiction of RDO North Quezon City. Without prior authorization from the BIR, the taxpayer filed its return through an authorized agent bank in RDO Cebu City. Tax due paid per return is P100,000. Compute amount still due.

Case 2 Solution Filing on time at the wrong venue Income tax due per return P100,000 Add: 25% surcharge for filing at the wrong venue (25% of 100,000) 25,000 Total amount due P 125,000 Less: Amount paid 100,000 Amount still due P 25,000

Case 3: Late filing and late payment due to Willful neglect The taxpayer did not file his ITR for the CY 2008 on April 15, He was notified by the BIR of his failure to file the ITR, for which reason, he filed his ITR and paid the tax only after the said notice on June 30,2009. The tax due per return is P100,000. Comp0ute the amount due.

Case 3 Solution Late filing and late payment of tax Due to taxpayer’s willful neglect Income tax due per return P100,000 Add: 50% surcharge for late filing and late payment (50% of 100,000) 50,000 20% interest p.a to (4.1667% of P100,000) 4,167 Total amount due excluding suggested compromise for late filing and late payment. P159,167

Case 4-A: Penalties for deficiency tax Taxpayer filed on time his ITR for calendar year 2008 and paid P100,000 on April 15, Upon pre-audit of his return, it was disclosed that he erroneously computed the tax due. The correct amount of tax due is P120,000. The taxpayer is assessed for deficiency income tax in a letter of demand and notice issued on June 30, Compute the tax due.

Case 4-A Solution Penalties for deficiency tax Income tax due per audit P120,000 Less: Amount paid per return 100,000 Deficiency income tax P 20,000 Add: 20% interest p.a. from to % of P20, Amount still due P 20,833.40

Case 4-B: Penalties for deficiency tax ABC Corporation filed its final adjustment ITR for CY 2009 and paid P100,000 on April 15, Upon pre- audit of his return, it was disclosed that some of the expenses did not meet all the statutory requisites for deductibility. The correct amount of tax due is P170,000. The taxpayer is assessed for deficiency income tax in a letter of demand and notice issued on May 31, 2010, requiring the taxpayer to pay the assessment not later than June 30,2010. Compute the tax due.

Case 4-B Solution Penalties for deficiency tax Income tax due per audit P170,000 Less: Amount paid per return 100,000 Deficiency income tax P 70,000 Add: 20% interest p.a. from to % of P70,0002, Amount still due P 72,916.90

Case 4-C: Penalties for deficiency tax XYZ Corporation filed its final adjustment ITR for CY 2009 and paid P170,000 on April 15, Upon investigation, it was disclosed that its ITR was false or fraudulent and did not report P500,000 taxable income. The tax due after recomputation amounted to P Notice of assessment was sent on May 31, 2010, requiring the taxpayer to pay not later than June 30,2010. Compute the tax due.

Case 4-C Solution Penalties for deficiency tax Income tax due per audit P300,000 Less: Amount paid per return 150,000 Deficiency income tax P 150,000 Add: 50% surcharge for filing a fraudulent return 75,000 20% interest p.a. from to % of P150,0006, Amount still due P231,250.50

Case 5: Late payment of a deficiency tax assessed Based on Case 4-C, assuming that the assessment was not paid on time (June 30, 2010) but paid on July 31, Compute the tax due.

Case 5 Solution Late payment of tax assessed Deficiency income taxP 231, Add: 50% surcharge for payment (231, x 25%) % interest p.a. from to % of P231, , Total Amount due P292, (excluding suggested compromise penalty)

Case 6-A: Partial or Installment payment of a tax Liability Extended payment of the tax is duly authorized. LMN Corp due to financial incapacity, requested for a permit to pay its income tax liability per return for CY 2009 in the amount of P1,000, in four (4) monthly installments, starting April 15, Compute amount due per installment

Case 6-A Solution Partial or Installment payment of a tax Liability (with BIR approval) Income Tax due per return P1,000,000 Less: 1 st Installment ,000 Balance as of P 750,000 From to % x P750,00012, Balance as of P762, Less: 2 nd installment , Balance as of P 500,000.00

Case 6-A Solution Partial or Installment payment of a tax Liability (with BIR approval) Balance as of P 500,000 From to % x P500,000 8, Balance as of P 508, Less: 3 nd installment , P 250, From to % x P250,000 4, th & final installment P254,166.75

Case 6-B: Partial or Installment payment of a tax Liability Partial payment of the tax without prior BIR Permit: OPQ Corp was informed by the BIR of its failure to pay its income tax of P1,000,000 on time. Due to financial incapacity, it paid P400,000 partial payment only. Assuming that the BIR demanded payment of the balance, to be due on June 15, 2009, how much is the unpaid balance of the corporation?

Case 6-B Solution Partial or Installment payment of a tax Liability (without permit from BIR) Income Tax due per return P1,000,000 Add: 25% surcharge for late filing an payment 250,000 20% interest to % x P1,000,000 16, Totalamount due P1,266, Less: Partial payment on , Balance as of P 866,666.70

Case 6-B Solution Partial or Installment payment of a tax Liability (without permit from BIR) Balance as of P 866, Add: 20% interest p.a. from to % x P866, , Amount still due (exclusive of suggested compromise penaltyP 811,111.17

Compromise Penalties (Sec 204) All criminal violations may be compromises except: a. those already filed in court b. those involving fraud Follow the suggested compromise penalty provided for by RMO 1-90.

Income Taxation End of presentation...