Taxation & Compliance
BIR Tax Audit: Just Another Business Process to Manage
Atty. Eloisa B. Talosig
You know that mini heart attack when you receive mail from the BIR, or when it comes knocking at your door, instead of a customer order? Relax. This is not a jump scare; it is a process with rules, steps, and timelines that actually work in your favor when you know them. The key? Do not panic and understand what happens next.
First things first: check if there is a Letter of Authority (LOA). This is the BIR’s “entry ticket” to examine your books and accounting records. Under the Tax Code, the Commissioner or his duly authorized representative has the power to authorize the examination of taxpayers and assessment of correct taxes. Once a valid LOA is in play, expect books and records requests and possible findings.
If discrepancies pop up, you will receive a Notice of Discrepancy (NOD) – your first chance to explain your side within a short window. Under BIR Revenue Regulations No. 22-2020, if you are found to be liable for deficiency tax/es in the course of an audit investigation, an NOD informing you of the discrepancy/ies in your payment of internal revenue taxes shall be issued. You must submit all necessary documents that support your explanation within 30 days after receipt of the NOD. Think of this as your early defense stage and use it well.
If things are not settled, you will meet the Preliminary Assessment Notice (PAN). This is where the BIR formally lays down its findings. You have 15 days to file a reply including all your supporting documents.
Still unresolved? That is when the Final Assessment Notice (FAN) and Formal Letter of Demand arrive. Note that the BIR can only issue the FAN/FLD upon receipt of your reply to the PAN or the lapse of the 15-day period without you having submitted a response. The FAN/FLD calling for payment of your deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, the assessment shall be void. You may file a protest, which is in the form of a reconsideration or reinvestigation, as the case may be. You may protest administratively against the FAN/FLD within 30 days from the date of receipt thereof. For requests for reinvestigation, you shall submit all relevant supporting documents in support of your protest within 60 days from the date of filing your letter of protest, otherwise, the assessment shall become final.
Bottom line for business owners: treat BIR notices like deadlines for payroll, rent, or supplier payments – time-sensitive and not to be ignored. The good news? The good news is that tax assessments are not arbitrary; they are governed by due process. Taxpayers are guaranteed a reasonable opportunity to respond and present their side at every stage of the audit. Without proper observance of this right to be heard, the assessment cannot stand and may be rendered void.
A tax audit does not have to feel like a horror story. With organized records, timely responses, and a proper legal guidance, it becomes just another business process to manage.