BIR Tax Audit: What to Do After Receiving a Letter of Authority (LOA)

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Receiving a Letter of Authority (LOA) from the Bureau of Internal Revenue (BIR) can be one of the most stressful moments for any business owner. An LOA signifies that the BIR will conduct a formal examination or audit of your books of accounts, tax returns, and financial records. However, with proper understanding, preparation, and professional support, a tax audit can be managed effectively and with minimal disruption to your business operations.

This article explains what an LOA is, what happens during a tax audit, and what steps taxpayers should take upon receiving one from the BIR.

What is a Letter of Authority (LOA)?

A Letter of Authority (LOA) is an official document issued by the BIR authorizing specific revenue officers to examine the taxpayer’s records for a particular taxable period. It is the first step in the audit process and serves as the legal basis for the BIR to assess potential tax deficiencies.

Without a valid LOA, the BIR cannot legally conduct an audit or request records from a taxpayer. The LOA must be signed by the Regional Director or Assistant Commissioner, depending on jurisdiction.

Common Reasons for Receiving an LOA

Taxpayers may receive an LOA for various reasons, including:

• Discrepancies or inconsistencies in filed tax returns.

• Significant differences between income declared to BIR and other government agencies (e.g., SEC, LGU, or banks).

• Claims for refunds or input VAT credits.

• Selection for random audit under BIR’s annual audit program.

• Whistleblower reports or third-party information received by the BIR.

What to Do Upon Receiving an LOA

If your business receives a Letter of Authority, it’s important to act promptly and carefully. Here are the key steps you should take:

1. Acknowledge Receipt of the LOA – Verify that the LOA contains the correct Tax Identification Number (TIN), taxable year covered, and the names of authorized BIR examiners.

2. Consult Your Accountant or Tax Advisor – Engage your CPA or tax consultant immediately to review your records and prepare for the audit.

3. Gather All Relevant Documents – Prepare copies of your books of accounts, financial statements, tax returns, and supporting documents such as invoices, receipts, and schedules.

4. Cooperate But Be Cautious – Always coordinate with your accountant before submitting any documents. Avoid providing records not covered by the LOA.

5. Attend the Initial Conference – The BIR examiner will schedule a meeting to discuss the scope and documents needed. Your representative should attend to ensure compliance and proper communication.

   
   

Understanding the BIR Audit Process

A typical BIR audit involves several stages. Understanding each phase helps taxpayers anticipate what to expect:

• Issuance of LOA – The audit officially begins once the taxpayer receives the LOA.

• Submission of Documents – The taxpayer must submit required records within the specified period.

• Field Audit / Examination – BIR examiners analyze accounting books, receipts, and tax returns to identify discrepancies.

• Notice of Discrepancy (NOD) – If findings arise, the taxpayer is given a chance to explain or present additional documents.

• Preliminary Assessment Notice (PAN) – Issued if issues remain unresolved.

• Final Assessment Notice (FAN) – The BIR formally assesses tax deficiencies with corresponding penalties and interests.

• Protest or Appeal – Taxpayers may file a written protest or appeal within 30 days from receipt of the FAN.

Tips for a Smooth and Successful BIR Audit

• Stay Organized – Maintain well-documented financial records and keep all official receipts, invoices, and contracts.

• File Taxes Accurately and On Time – Timely and accurate filing reduces the likelihood of audit findings.

• Keep Copies of All Filings and Communications – Record every correspondence with the BIR for reference.

• Seek Professional Help – Work with experienced tax consultants like DV Consulting to handle technical discussions and documentation.

• Avoid Confrontation – Maintain professionalism and transparency when dealing with BIR officers.

Know Your Rights as a Taxpayer

Taxpayers under audit have rights guaranteed under the Taxpayer’s Bill of Rights,

including:

• The right to be informed of the audit scope and findings.

• The right to be represented by a CPA or authorized tax agent.

• The right to a fair and impartial audit.

• The right to receive copies of official notices and reports.

• The right to appeal or protest assessments.

How DV Consulting Inc. Can Help

DV Consulting Inc. specializes in BIR audit assistance, compliance review, and tax representation. Our team of experienced CPAs and tax consultants assists businesses in preparing documentation, responding to BIR queries, and ensuring compliance with audit requirements.

We provide strategic advice to minimize exposure to penalties and ensure proper resolution of assessments, helping businesses maintain peace of mind during the entire audit process.

A BIR tax audit is a serious matter that requires diligence, accuracy, and professional guidance. Upon receiving a Letter of Authority, business owners must act quickly review their records, consult experts, and comply with procedures to avoid unnecessary penalties or prolonged disputes.

With proper preparation and the assistance of tax professionals like DV Consulting Inc., businesses can effectively manage their audit process and ensure compliance with Philippine tax laws.

Article created by:

Danhilson Vivo, CPA, REB, REA

President & CEO

DV Consulting