February is often associated with love because of Valentine’s Day. However, to those who are dating, it is now common to hear the term “ghosting,” which means the act of suddenly cutting off ties without explanation due to fear of confrontation. But for taxpayers, ghosting the BIR is something to regret, especially when it comes to tax audits.

The BIR is no stranger to being ghosted by taxpayers, which it classifies as Cannot Be Located (CBL). On Jan. 14, the BIR issued Revenue Memorandum Order (RMO) No. 004-2025, outlining the policies and guidelines in reporting CBL taxpayers and the procedures for handling their cases.

Taxpayers may be considered CBL when they are not found at their registered address, their whereabouts cannot be established, or their indicated address is non-existent. The RMO also provides that those taxpayers with virtual offices (a shared office utilized by various taxpayers), but with no authorized representative available to receive any correspondence addressed to them, may likewise be considered CBL.

In case there are irregularities in the registration process resulting in the taxpayer being tagged as CBL, the concerned Revenue Officers (ROs)/officials involved will be subject to appropriate sanctions.

Equally important to note is that, before the concerned RO handling the case may tag such taxpayers as CBL, they are required to exhaust all possible means available to locate the taxpayer.

One of the ways ROs confirm whether a taxpayer is CBL is by collaborating with government agencies, suppliers, and purchasers possibly connected with the taxpayer. ROs are allowed to send notices to the taxpayer’s e-mail address or to its authorized tax agent of record. In the case of corporate taxpayers, ROs may send notices to their accountable officers, or even to the Certified Public Accountant indicated in the taxpayer’s financial statements.

In case these efforts to locate the taxpayer produce no results, the case officers may also resort to obtaining certifications from other government agencies to confirm the non-existence/non-compliance/inactive status of the taxpayer. A consolidated list of CBL taxpayers is uploaded to the BIR website. The BIR is required to issue an “Advisory” on the newly published lists of CBLs, together with the instructions on what the taxpayers should do if they see their names on the list.

EFFECTS OF BEING TAGGED CBL
So, what happens when a taxpayer with a pending BIR audit/assessment is declared CBL? In general, internal revenue taxes are to be assessed within three years after the last day prescribed by law for its filing or from the day the return was filed, whichever is later. This prescriptive period affords taxpayers protection against lengthy and unreasonable investigation. However, RMO 004-2025 highlights that when a taxpayer is CBL, such a period of limitation is suspended and may only resume upon the service of any previously unserved correspondence/notice.

Notwithstanding the suspension of the period of limitation for both assessment and collection, it is required that the Notice of Discrepancy/Discussion of Discrepancy (NoD/DoD) be issued to document the taxpayer’s deficiency in any internal revenue tax.

In cases where the notices requesting the presentation of accounting records and documents have not been served due to the taxpayer being classified as CBL, the NoD/DoD is to be prepared based on available documents. The issuance of a subpoena is not necessary to justify the assessment based on available documents. Further, the taxpayer’s right to a DoD as indicated in the NoD is forfeited, and the PAN will be issued accordingly.

To those taxpayers who have pending applications (i.e., tax clearance, registration of books of account, etc.), the BIR office concerned is required to conduct a verification of whether the applicant is CBL. In this case, the number of days to process these applications, as mandated under existing revenue issuance in accordance with the Ease of Doing Business law, do not apply.

ROs handling audit or refund cases must verify from the published list of CBL taxpayers if there are expenses/input taxes being claimed by the auditee-taxpayer arising from transactions with CBL taxpayers. Purchases made from a published CBL taxpayer may not be allowed as deductions for Income tax purposes, and if the transaction has a VAT component, the same cannot be claimed as input tax, unless the buyer can prove the authenticity of purchases made, among others.

Clearly, proper communication is important not only when it comes to romantic relationships, but also in dealing with the BIR. It is the taxpayer’s responsibility to keep records updated especially when there are changes in registration, specifically regarding their registered address and other relevant information. Corporate taxpayers using a virtual office as their registered business address, must ensure there is an authorized representative available to receive correspondence from the BIR. Although the CBL classification may not be forever, there are still repercussions that the taxpayer may come to regret, especially when faced with a BIR audit.

Ma. Jessica A. Guevarra is a senior manager of the Tax Advisory & Compliance Practice Area of P&A Grant Thornton.

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