We have seen a significant rise in the Bureau of Internal Revenue’s (BIR) revenue collection targets over the years, as the government’s budget requirements continue to grow. While these targets are primarily achieved through voluntary tax compliance, a sizeable chunk of this can also be attributed to payment of deficiency taxes arising from enforcement actions or assessments.
The tax assessment process commences from the taxpayer’s receipt of a Letter of Authority (LoA), which authorizes revenue officers to examine the books of account and other records of a taxpayer. This is likely familiar to most taxpayers— whether large or small. While taxpayers typically receive one LoA in a year, there are some cases where multiple LoAs for different taxable years arrive within the same calendar year, forcing businesses to juggle year-end compliance alongside ongoing audits.
Tax assessments have recently been in the spotlight, amidst several issues raised by legislators on the use of government funds. Due to taxpayer complaints about excessive and irregular LoAs, a proposed resolution was filed in the Senate urging the chamber “to investigate the allegations of misuse of LoAs by the BIR as a money-making scheme.” These practices have also raised concerns among taxpayers about the frequency of LoAs and inconsistencies in tax audit handling, which allegedly include varying interpretations of the tax rules by different revenue officers.
In response to the concerns raised and amid the looming Senate probe, the BIR’s newly appointed Commissioner of Internal Revenue (CIR) issued Revenue Memorandum Circular (RMC) No. 107-2025 on Nov. 24, suspending all audit and other field operations effective immediately.
The suspension applies to all BIR operating offices and covers the issuance of LoAs, Mission Orders (MOs), examination and verification of taxpayer records, and related transactions. It also includes revalidation, extension, replacement, or supplementary LoAs and MOs—except in cases falling under specified exceptions.
Except for certain circumstances, the (1) issuance of written orders to audit or investigate taxpayers’ internal revenue liabilities, and (2) issuance of Assessment Notices, Warrants, and Seizure Notices are likewise suspended. The RMC lists six exceptions to the suspension, such as investigation of cases prescribing within six months from the date of the RMC; transfers of real properties or shares of stocks; issuance of LoAs or MOs necessary for active criminal probes; and other matters/concerns where deadlines have been imposed or under the order of the CIR, among others. Thus, while the RMC offers reprieve to most, it is not a total ceasefire from the BIR – taxpayers would do well to revisit whether their ongoing cases fall under these exceptions to avoid any untoward surprises.
While the RMC provides that the exceptions include cases prescribing within the coming six-month period, it is not too clear on which prescriptive period the six-month period would be based on. Most LoAs cover all internal revenue taxes, and considering that different tax types have varying prescriptive periods, some tax types may be prescribing within the period of exception (such as withholding taxes), while other tax types may be beyond the period. In my experience, BIR officers generally compute the three-year prescriptive period for tax assessment from the actual or prescribed date of filing the income tax return. It would be helpful for the BIR to confirm whether the same approach also applies for the said exception.
Notably, the RMC did not explicitly mention the suspension of the issuance of the Final Decision on Disputed Assessment (FDDA). While the FDDA similarly demands the payment of the deficiency taxes, it is a decision based on the taxpayers’ response to the Final Assessment Notice (FAN), the latter of which is the result of the BIR’s conduct of its audit and investigation. In preparing the FDDA, the BIR evaluates the taxpayer’s protest instead of conducting fieldwork/audit. It may thus be inferred that the BIR will continue issuing FDDAs in cases where the statutory period for filing a protest letter or submission of the additional documents has lapsed.
It is also worth pointing out that aside from the suspension of the audit and field audit operations, the RMC also provided specific directives under Section 5. In the past, the BIR has also suspended the field audit and other field operations with no mention of the purpose for the suspension and the next steps to be taken during the suspension of audit.
This time, the BIR explained that the suspension was imposed in order to address systematic issues, protect taxpayer rights, and develop a transparent, standardized, and modernized audit framework. Thus, to achieve this, the CIR ordered the creation of a Technical Working Group or Review Committee on LoA and MO Integrity and Audit Reforms, which is tasked with evaluating the existing tax audit frameworks and recommend a revised protocol for LoA issuance, among others.
With the year drawing to a close and taxpayers preparing for their year-end compliance, the suspension of audit and field audit operations offers welcome relief, by providing assurance that no new LoAs will be issued until the lifting has been ordered by the CIR. Maybe adding to their holiday wish list, a taxpayer would also earnestly hope that the suspension does not represent the end of the BIR’s action in addressing taxpayer concerns but the start of a complete reform of the tax audit process.
As a further step, beyond clarifying the exceptions and the scope of suspension, I hope that the BIR will revisit the current rules and policies on the tax audit process, particularly those governing assessment notices. This would help address taxpayer concerns regarding disparities in the interpretation of the tax audit rules. By doing so, taxpayers would be better informed about the process and avoid potential due process violations, while improving transparency and accountability.
Ultimately, while tax audits serve as one of the BIR’s sources of revenue, the goal remains to encourage compliance with tax laws and regulations. Perhaps, a revamped LoA issuance protocol —and, ideally, a comprehensive reform of the tax audit process—could help the government achieve its annual revenue targets mostly through voluntary tax compliance.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Maryanne Patricia P. Uno is a manager at the Tax Services department of Isla Lipana & Co. the Philippine member firm of the PwC network.
+63 (2) 8845-2728
maryanne.patricia.uno@pwc.com
