On Power, Authority, and Assessments: A Valid LOA

As featured on PhilStar:  On Power, Authority, and Assessments: A Valid LOA

While the words "power" and "authority" are interchangeable in some contexts, it is important to reflect that the technical meaning of the two words is not the same. Max Weber, a known philosopher, even differentiated the two by saying that "power is the ability to control or direct others, while authority is the influence that is predicated on perceived legitimacy." Consequently, power is necessary for authority, but it is possible to have power without authority.

In tax, a common question asked by taxpayers is when does the tax authorities have the authority to audit the taxpayer’s books of accounts and other accounting records.

Under Revenue Regulations (RR) 12-99, as amended, a Revenue Officer (RO) is vested with the authority to examine a taxpayer’s books of accounts and accounting records for a particular period, typically a particular taxable year, when a Letter of Authority (LOA) is issued in the name of the Revenue Officer.

In the exigency of service, a taxpayer may deal with more than one RO during the tax audit or assessment. Such is the case when the original RO handling the tax audit or assessment is mandated to report to a different Revenue District Office.  In case of reassignments or transfers of assignment of an RO, what document can support or prove the authority of the new Revenue Officer taking over the tax audit or assessment? Can a referral memorandum, memorandum of assignment (MOA), or equivalent document be taken as sufficient proof of authority of the newly assigned RO?

In a recent Supreme Court (SC) resolution (G.R. No. 249795, promulgated on November 29, 2022), the SC reiterated that only an LOA can vest authority in the new Revenue Officer.

The tax authority took the position in that Revenue Memorandum Order (RMO) Nos. 08-2006 and 69-2010 provided that a referral memorandum, memorandum of assignment, or equivalent document can be issued in case of reassignment of ROs.  The SC held that the RMOs provided additional regulations in case of reassignment of revenue officers and did not remove the requirement for the issuance of an LOA. Rather, the MOA, referral memorandum, or any equivalent document is issued for the purpose of reassignment and transfer of cases of revenue officers, and not to vest authority on an RO to examine a taxpayer's books of accounts, which is the function of an LOA.

Further, the SC noted that under RMO No. 43-90 there is a requirement that the continuation of a tax assessment or audit by a Revenue Officer, by someone other than the officer named in a previous LOA, requires the issuance of a new LOA.  The lack of an LOA authorizing the new ROs to continue the audit of the taxpayer’s books of accounts render the resulting assessments void.

This recent resolution is a timely reminder that the difference between power and authority for tax audits or assessments rests on the difference between a referral memorandum or MOA and an LOA. Since a referral memorandum or a MOA is not a substitute for an LOA, it can also be said that power is not equivalent to authority. We emphasize that only with the existence of a properly issued LOA can there be a valid authority to conduct an assessment. Without this authorization, the entire procedure is rendered a nullity.