SUMMARY NOTES

F. The BIR audit process

1) Release of Letter of Authority (LA) to the revenue officer
 Letter of Authority – official document, authorizes a BIR Revenue Officer to examine a
taxpayer’s books of accounts and other accounting records.
 Issues and Approves the LAs?
Investigating Office Approving Official
Revenue District Office Regional Director
Large Taxpayer Service Audit Divisions Assistant Commissioner-LTS
National Investigation Divisions and
Commissioner of Internal Revenue
Special Investigation Division
 Requisites for the validity of an LA:
a) Must be served to the taxpayer within 30 days from its date of issuance.
b) Must be an electronic LA (eLA) printed under BIR Form 1966 issued under BIR Letter of
Authority Monitoring System (LAMS).
2) Conduct of the audit examination
 conducted in the place of business of taxpayer.
 Period of Investigation – up to 120 days counted from the date of receipt of eLA by the
taxpayer.
 Frequency of revalidation of LAs – revalidate once (issued by Regional Office/Revenue
District Offices)
– revalidate twice (issued by National Office)
 Frequency of taxpayer examination – subject to examination only once in every taxable
year.
3) Reporting on the results of examination
 Finding of Sufficient Basis of Agreement
 Assess the taxpayer for any deficiency tax/es.
 Revenue Officer – recommend the issuance of an assessment to the taxpayer in
his report.
 Determining the Amount of Taxes and Increments to Demand
 Demanding unpaid delinquency or deficiency tax.
 BIR impose increments:
a) Surcharge – basic tax rate:
 Simple neglect to file – 25%
 Willful neglect to file – 50%
b) Interest – currently 12% per annum (double of the rate prescribed for
forbearance of money).
c) Compromise Penalty – settlement for gov’t not to enforce criminal protection.

G. Other notices to taxpayers

1) Tax Verification Notice (TVN)
 Authorizes evaluation/verification of tax on one-time transaction (ONETT).
 Cases such as estate tax, donor’s tax and capital gains tax.
2) Letter Notice (LN)
  Communication from BIR national office to taxpayer informing of finding the
significant discrepancy.
 Sales/Purchases reported in his tax return and information obtain by the BIR from
third parties.

Data Matching System – data mining technique to match taxpayer’s reported data.
– such as sales against data furnished by third parties, purchases of
taxpayer’s customers.

H. Power of the CIR to obtain information

 To summon, examine and take testimony of persons.
 When reasonable demands, certain documents, information or records aren’t forthcoming
during examination, BIR may issue subpoena to the taxpayer.
Types of Subpoena:
1) Subpoena duces tecum
 Summon upon taxpayer or other persons compelling them to produce, under
penalty, certain documents sought therein.
 Issued to taxpayer after his failure to comply with two consecutive requests to
produce his books for examination.
2) Subpoena ad testificandum
 Summon upon a person to appear and to give oral testimony.
 If the requested docs, recs or info cannot be obtained, assessment will be based on
“BEST EVIDENCE OBTAINABLE” rule.