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GENERALAUDITPROCEDURESANDDOCUMENTATION
TAXPAYERSOBLIGATIONSANDPRIVILEGES
REMEDIESOFTHEBUREAUINTHEAUDITPROCESSANDCOLLECTIONOFDELINQUENTACCOUNTS
GENERALAUDITPROCEDURESANDDOCUMENTATION
1.Whendoestheauditprocessbegin?TheauditprocesscommenceswiththeissuanceofaLetterofAuthoritytoataxpayer
whohasbeenselectedforaudit.
2.WhatisaLetterofAuthority?TheLetterofAuthorityisanofficialdocumentthatempowersaRevenueOfficertoexamine
and scrutinize a Taxpayers books of accounts and other accounting records, in order to determine the Taxpayers correct
internalrevenuetaxliabilities.
3.WhoissuestheLetterofAuthority?LetterofAuthority,foraudit/investigationoftaxpayersunderthejurisdictionofNational
Office,shallbeissuedandapprovedbytheCommissionerofInternalRevenue,while,fortaxpayersunderthejurisdictionof
RegionalOffices,itshallbeissuedbytheRegionalDirector.
4.WhenmustaLetterofAuthoritybeserved?ALetterofAuthoritymustbeservedtotheconcernedTaxpayerwithinthirty(30)
daysfromitsdateofissuance,otherwise,itshallbecomenullandvoid.TheTaxpayershallthenhavetherighttorefusethe
serviceofthisLA,unlesstheLAisrevalidated.
5.HowoftencanaLetterofAuthorityberevalidated?ALetterofAuthorityisrevalidatedthroughtheissuanceofanewLA.
However,aLetterofAuthoritycanberevalidated
Onlyonce,forLAsissuedintheRevenueRegionalOfficesortheRevenueDistrictOfficesor
Twice,inthecaseofLAsissuedbytheNationalOffice.
AnysuspendedLA(s)mustbeattachedtothenewLAissued(RMO3888).

6.HowmuchtimedoesaRevenueOfficerhavetoconductanaudit?ARevenueOfficerisallowedonlyonehundredtwenty
(120)daysfromthedateofreceiptofaLetterofAuthoritybytheTaxpayertoconducttheauditandsubmittherequiredreport
ofinvestigation.IftheRevenueOfficerisunabletosubmithisfinalreportofinvestigationwithinthe120dayperiod,hemust
thensubmitaProgressReporttohisHeadofOffice,andsurrendertheLetterofAuthorityforrevalidation.
7. How is a particular taxpayer selected for audit?Officers of the Bureau (Revenue District Officers, Chief, Large Taxpayer
AssessmentDivision,Chief,ExciseTaxpayerOperationsDivision,Chief,PolicyCasesandTaxFraudDivision)responsiblefor
the conduct of audit/investigation shall prepare a list of all taxpayer who fall within the selection criteria prescribed in a
RevenueMemorandumOrderissuedbytheCIRtoestablishguidelinesfortheauditprogramofaparticularyear.Thelistof
taxpayers shall then be submitted to their respectiveAssistant Commissioner for preapproval and to the Commissioner of
Internal Revenue for final approval. The list submitted by RDO shall be preapproved by the Regional Director and finally
approvedbyAssistantCommissioner,AssessmentService(RMOs6499,6799,182000and192000).
8.Howmanytimescanataxpayerbesubjectedtoexaminationandinspectionforthesametaxableyear?Ataxpayersbooks
ofaccountsshallbesubjectedtoexaminationandinspectiononlyonceforataxableyear,exceptinthefollowingcases:
WhentheCommissionerdeterminesthatfraud,irregularities,ormistakeswerecommittedbyTaxpayer
WhentheTaxpayerhimselfrequestsareinvestigationorreexaminationofhisbooksofaccounts
WhenthereisaneedtoverifytheTaxpayerscompliancewithwithholdingandotherinternalrevenuetaxesasprescribedina
RevenueMemorandumOrderissuedbytheCommissionerofInternalRevenue.
WhentheTaxpayerscapitalgainstaxliabilitiesmustbeverifiedand
When the Commissioner chooses to exercise his power to obtain information relative to the examination of otherTaxpayers
(Secs.5and235,NIRC).
9. What are some of the powers of the Commissioner relative to the audit process?In addition to the authority of the
CommissionertoexamineandinspectthebooksofaccountsofaTaxpayerwhoisbeingaudited,theCommissionermayalso:
ObtaindataandinformationfromprivatepartiesotherthantheTaxpayerhimself(Sec.5,NIRC)and
Conductinventoryandsurveillance,andprescribepresumptivegrosssalesandreceipts(Sec.6,NIRC).
10.WhatisaNoticeforInformalConference?ANoticeforInformalConferenceisawrittennoticeinformingaTaxpayerthatthe
findings of the audit conducted on his books of accounts and accounting records indicate that additional taxes or deficiency
assessmentshavetobepaid.
If, after the culmination of an audit, a Revenue Officer recommends the imposition of deficiency assessments, this
recommendation is communicated by the Bureau to the Taxpayer concerned during an informal conference called for this
purpose.TheTaxpayershallthenhavefifteen(15)daysfromthedateofhisreceiptoftheNoticeforInformalConferenceto
explainhisside.
11.Withinwhattimeperiodmustanassessmentbemade?Anassessmentmustbemadewithinthree(3)yearsfromthelast
dayprescribedbylawforthefilingofthetaxreturnforthetaxthatisbeingsubjectedtoassessmentorfromthedaythereturn
wasfilediffiledlate.However,incasesinvolvingtaxfraud,theBureauhasten(10)yearsfromthedateofdiscoveryofsuch
fraudwithinwhichtomaketheassessment.
Anyassessmentsissuedaftertheapplicableperiodaredeemedtohaveprescribed,andcannolongerbecollectedfromthe
Taxpayer,unlesstheTaxpayerhaspreviouslyexecutedaWaiverofStatuteofLimitations.

12. What is "JeopardyAssessment"?A JeopardyAssessment is a tax assessment made by an authorized Revenue Officer
withoutthebenefitofcompleteorpartialaudit,inlightoftheROsbeliefthattheassessmentandcollectionofadeficiencytax
willbejeopardizedbydelaycausedbytheTaxpayersfailureto:
Complywithauditandinvestigationrequirementstopresenthisbooksofaccountsand/orpertinentrecords,or
Substantiatealloranyofthedeductions,exemptionsorcreditsclaimedinhisreturn.
13. What is a PreAssessment Notice (PAN)? The PreAssessment Notice is a communication issued by the Regional
Assessment Division, or any other concerned BIR Office, informing aTaxpayer who has been audited of the findings of the
RevenueOfficer,followingthereviewofthesefindings.
IftheTaxpayerdisagreeswiththefindingsstatedinthePAN,heshallthenhavefifteen(15)daysfromhisreceiptofthePANto
fileawrittenreplycontestingtheproposedassessment.
14. Under what instances is PAN no longer required?A PreliminaryAssessment Notice shall not be required in any of the
following cases, in which case, issuance of the formal assessment notice for the payment of the taxpayers deficiency tax
liabilityshallbesufficient:
Whenthefindingforanydeficiencytaxistheresultofmathematicalerrorinthecomputationofthetaxappearingonthefaceof
thetaxreturnfiledbythetaxpayeror
Whenadiscrepancyhasbeendeterminedbetweenthetaxwithheldandtheamountactuallyremittedbythewithholdingagent
or
When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was
determinedtohavecarriedoverandautomaticallyappliedthesameamountclaimedagainsttheestimatedtaxliabilitiesforthe
taxablequarterorquartersofthesucceedingtaxableyearor
Whentheexcisetaxdueonexcisablearticleshasnotbeenpaidor
Whenanarticlelocallypurchasedorimportedbyanexemptperson,suchas,butnotlimitedto,vehicles,capitalequipment,
machineriesandspareparts,hasbeensold,tradedortransferredtononexemptpersons.
15.WhatisaNoticeofAssessment/FormalLetterofDemand?
A NoticeofAssessment is a declarationofdeficiency taxes issued to aTaxpayer who fails to respond to a PreAssessment
Noticewithintheprescribedperiodoftime,orwhosereplytothePANwasfoundtobewithoutmerit.TheNoticeofAssessment
shallinformtheTaxpayerofthisfact,andthatthereportofinvestigationsubmittedbytheRevenueOfficerconductingtheaudit
shallbegivenduecourse.
Theformalletterofdemandcallingforpaymentofthetaxpayersdeficiencytaxortaxesshallstatethefacts,thelaw,rulesand
regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and the notice of
assessmentshallbevoid.

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