REVENUE MEMORANDUM CIRCULAR NO. 3-2022 issued on January 14, 2022 clarifies the preparation of assessment notices for compromise penalty(ies) pursuant to the provisions under Revenue Memorandum Order (RMO) No. 7-2015 and Revenue Regulations (RR) No. 12-99, as amended by RR No. 18-2013, in the issuance of a deficiency tax assessment. 

        Compromise penalties are amounts collected in lieu of criminal prosecution for violation committed by the taxpayer, where payment is based on a compromise agreement validly entered into between the taxpayer and the Commissioner of Internal Revenue.

          Item No. III.4 of the aforesaid RMO laid down that:

“Although all amounts of compromise penalties incident to violations shall be itemized in the assessment notice and/or demand letter, the same should not form part of assessment notice that reflects deficiency basic tax, surcharge and interest but should appear in a separate assessment notice/demand letter as the amount suggested to the taxpayer to pav in lieu of criminal prosecution.” (emphasis supplied) 

        Notwithstanding the foregoing, it has been observed that there are times when the assessment notice for deficiency basic tax(es) and civil penalties also includes the compromise penalty(ies). Hence, for uniformity in the preparation of assessment notices, the prescribed formats under RR No. 18-2013, such as Preliminary Assessment Notice and Formal Letter of Demand, shall now be composed of Part I and Part Il where Part I shall pertain to deficiency basic tax(es) and civil penalties, while Part Il shall pertain to the assessed compromise penalty(ies) relative to violations uncovered during the conduct of audit. Part Il of the applicable notices are prescribed in the Circular as Annexes A and B, with sample item of violations to the Tax Code, as amended:

Annex A – Preliminary Assessment Notice (Part Il)
Annex B.1 – Formal Letter of Demand (Part Il)
Annex B.2 – Final Assessment Notice

   Likewise, the preparation of BIR Form No. 0605-Payment Form for the settlement/payment of the deficiency basic tax and civil penalties in “Part l” of the assessment notices and BIR Form No. 0605 for compromise penalty(ies) in Part Il (Annex C) shall be done separately.