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As a business owner, one of your primary responsibilities is to educate yourself about the Bureau of Internal Revenue (BIR) processes and respond to communications promptly—especially when you receive a Letter of Authority (LOA).
However, this process may seem intimidating and confusing when you need to focus on growing your business and generating profit.
We’ve got you covered. This brief guide will help you quickly understand LOAs and the BIR audit process.
Contents
What is a Letter of Authority?
A Letter of Authority is an official document the Commissioner of Internal Revenue issues to audit taxpayers under the jurisdiction of the BIR national office. In cases where taxpayers under the jurisdiction of the BIR regional offices are the subject of an audit, the Regional Director issues the LOA.
Through the LOA, BIR revenue officers can look into your financial statement audit reports, book of accounts, and other accounting records for audit. The examination of these records focuses on determining your tax liabilities for a particular year.
However, the BIR must serve the LOA within 30 days from the LOA issuance date. If you don’t receive the LOA by then, the LOA is already null and void. That means you can refuse to accept the LOA unless the concerned offices issue a new one. BIR district and regional offices can reissue the LOA once, while the BIR national office can do so twice.
The BIR Audit Process
It’s normal to feel a sense of panic upon receiving BIR’s LOA. However, if you know what to do, you can work your way through the process with less stress.
Step 1: Prepare your documents
An LOA indicates the documents you must submit and present to the BIR within 10 days of receiving the notice. These documents include the following:
- Ledgers
- Journals
- Sales and purchase books and schedules
- Official receipts
- Sales invoices
- List of payables and receivables
- Etc.
Step 2: Respond to the BIR
Responding to the BIR entails submitting all the required documents for the revenue officers to examine and assess. Should there be any discrepancies or clarifications from their assessment, expect them to send you the following notices:
- Notice of Discrepancy
A Notice of Discrepancy (NOD) lets you know your tax deficiencies. Paying your liabilities settles your tax issue with the BIR.
Otherwise, you have five (5) days after the notice receipt to present your side by providing supplementary documents. If you need more time, you can still submit supporting documents as long as you don’t exceed 30 days after the first day of notice.
- Preliminary Assessment Notice
Suppose the BIR claims you still have tax deficiencies but you don’t agree to the tax deficiency findings. In that case, the next course of action for the revenue office is to issue a Preliminary Assessment Notice (PAN). You must then reply and submit relevant documents within 15 days of receiving the PAN.
- Formal Letter of Demand or Final Assessment Notice
In case of an unsettled dispute, the BIR will issue a Formal Letter of Demand (FLD) and Final Assessment Notice (FAN). If you disagree with BIR’s findings, you may file a protest letter within 30 days of receiving the FLD or FAN to request a reconsideration or reinvestigation.
Filing the former entails requesting the BIR to re-evaluate its assessment based on the documents you have submitted, whereas you can present additional or new evidence during a reinvestigation.
- Final Decision on the Dispute
After evaluating your protest letter, the BIR will issue its Final Decision on Disputed Assessment (FDDA). At this point, your options include concluding the tax audit by paying, requesting the CIR to reconsider, or filing a petition with the Court of Tax Appeals (CTA) to review the CIR-signed FDDA within 30 days of its receipt.
Step 3: Be proactive
Receiving an LOA is the start of the BIR’s auditing process, but it doesn’t have to end in a complex legal battle if you adopt a proactive approach. Review your tax records, organize your documents, and communicate with BIR officers to resolve discrepancies in your tax payments.
Ready for the BIR Audit
BIR audits require your attention and action. Preparing the proper documents, responding to the notices, and staying proactive can help make the process more manageable.
Whether it’s an LOA or any other tax compliance issue, your business must always be well-prepared. Get professional services from accounting and financial experts in the country. Contact CloudCfO today.
