Updates on BIR audit reforms

The suspension of audit and field operations following the issuance of Revenue Memorandum Circular (RMC) No. 1072025 on Nov. 24 marked a deliberate pause in the Bureau of Internal Revenue’s (BIR) audit operations. This suspension was intended not merely as a reprieve for taxpayers but as a strategic opportunity for the BIR to recalibrate its audit framework, enhancing efficiency, strengthening safeguards, and restoring confidence in the integrity of the tax audit system.

This administrative shift is part of a broader effort to rebuild trust among investors and businesses. In recent years, taxpayers have expressed growing concerns over inconsistent audit practices, inadequate oversight, and the operational burden that audits impose, often disrupting business activities and affecting financial performance. In response, BIR has initiated a comprehensive review of its audit protocols. The reforms summarized below reflect areas the BIR is actively refining as it prepares to relaunch its audit operations.

USE OF VALID AUDIT AND VERIFICATION INSTRUMENTS
A core component of the reform is ensuring that tax audits proceed only on the basis of validly issued and properly verifiable audit instruments. The BIR intends to limit audit authorization to the following:

• Electronic Letter of Authority (eLA) — permits a full tax audit, including a review of books, working papers, and third-party checks.

• Tax Verification Notice (TVN) — authorizes limited verification activities, such as validating claims or conducting limited reviews of books or records.

• Mission Order (MO) — authorizes site visits, business validations, and inventory checks but does not authorize the examination of books.

The recent issuance of RMC No. 52026 (Jan. 23) complements these reforms by enabling taxpayers to verify an LoA through the BIR chatbot REVIE. An “LoA Not Found” result triggers manual verification by the BIR upon e-mail request of the taxpayer, with a three-day response time required of the Assessment Service.

Stricter safeguards regarding the use of these instruments will help prevent unauthorized audits and curb abuse such as the use of fake eLAs in extortion attempts.

MINIMIZING MULTIPLE AND OVERLAPPING AUDITS
The BIR is also examining how to limit the frequency and volume of eLAs issued per taxable year. Initial discussions indicate that the BIR may restrict the issuance of eLAs to one per taxpayer per taxable year, covering all tax types, subject to mandatory audit exceptions.

Additionally, the BIR is exploring the automatic consolidation of multiple pending eLAs covering the same taxable year; for instance, separate eLAs for VAT and income taxes, unless the taxpayer files a request for non-consolidation. This reform aims to reduce the administrative burden caused by overlapping audits.

The BIR is likewise evaluating the dissolution of special audit task forces whose functions will be absorbed by regular BIR offices to prevent redundant or conflicting audit activities.

These measures will give taxpayers a clearer picture of the scope and timing of their audits, to allow more effective planning and resource allocation to address them.

DATA-DRIVEN AND RISK-BASED  AUDIT SELECTION
While the BIR retains statutory authority to audit any taxpayer, it is moving towards a system-assisted, risk-based selection framework designed to focus on taxpayers with higher compliance risks. Selection indicators being studied include:

• Quantitative ratio indicators — unusual fluctuations in income, expenses, or margins.

• Cross-return and third-party mismatches — inconsistencies between taxpayer filings and third-party data.

• Behavioral and trend signals — sudden changes in reporting patterns.

• Mandatory triggers — audits required by law, refund claims, or BIR directives.

• Structural and industry risk flags — inherent risks associated with certain industries or business structures.

With greater transparency around audit triggers, taxpayers can evaluate their own compliance posture, identify internal risk points, and implement proactive corrections.

STRONGER DOCUMENTATION AND AUDIT GOVERNANCE
The BIR is also considering the adoption of a strictly documented audit process to ensure fairness and accountability. This will include:

• Standardized audit checklists

• Mandatory documentation of audit events

• Clear due process and audit safeguards

• Tighter oversight of assessment stages

A more uniform audit methodology will help taxpayers monitor audit progress, respond more effectively to findings, and avoid prolonged, open-ended audits.

HIGHER STANDARDS FOR AUDIT ASSESSMENTS
Enhanced assessment rules will require that only findings supported by verified facts and clear legal bases be included in deficiency notices. Assessments must:

• Clearly state factual findings

• Provide detailed computations

• Cite the applicable legal provisions

• Exclude any unvalidated issues

All deficiency assessments will undergo supervisory review to ensure accuracy and defensibility. Importantly, exaggerated or baseless findings may expose BIR personnel to administrative, civil, or even criminal sanctions.

EXPECTED TIMING OF AUDIT RESUMPTION AND FULL IMPLEMENTATION
When the suspension of tax audits under RMC 1072025 is lifted, the BIR is expected to gradually integrate the reforms described above into its procedures. The fully reformed BIR Audit Program for 2026 is targeted to take effect on May 1. The BIR is expected to release the corresponding revenue issuances over the coming weeks.

PREPARING FOR THE REFORMED AUDIT ENVIRONMENT
With the reforms approaching, businesses are encouraged to ensure internal records reconcile with third-party data, review ratios, margins, and reporting patterns for compliance risks, maintain organized and complete documentation, and strengthen internal controls and tax readiness.

Taxpayers with robust compliance systems will be better equipped to navigate the transition and minimize audit risks.

TAKEAWAY
While tax audits are an essential aspect of the BIR’s enforcement mandate, they must be conducted in a manner that is efficient, transparent, and minimally disruptive to business operations. The BIR’s shift toward a more standardized, rules-based, and documented audit system signals a future in which tax audits are more predictable and fair. Ultimately, a well-implemented audit reform program promotes not only taxpayer compliance but also a healthier business environment, one that encourages investment, supports economic growth, and sustains government revenue.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

Aaron Paul A. Santos is a manager from the Tax Advisory & Compliance practice area of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.