GENERAL AUDIT PROCEDURES AND DOCUMENTATION

1. When does the audit process begin?The audit process commences with the issuance of a Letter of
Authority to a taxpayer who has been selected for audit.
2. What is a Letter of Authority? The Letter of Authority is an official document that empowers a
Revenue Officer to examine and scrutinize a Taxpayers books of accounts and other accounting
records, in order to determine the Taxpayers correct internal revenue tax liabilities.
3. Who issues the Letter of Authority? Letter of Authority, for audit/investigation of taxpayers under the
jurisdiction of National Office, shall be issued and approved by the Commissioner of Internal
Revenue, while, for taxpayers under the jurisdiction of Regional Offices, it shall be issued by the
Regional Director.
4. When must a Letter of Authority be served? A Letter of Authority must be served to the concerned
Taxpayer within thirty (30) days from its date of issuance, otherwise, it shall become null and void.
The Taxpayer shall then have the right to refuse the service of this LA, unless the LA is revalidated.
5. How often can a Letter of Authority be revalidated? A Letter of Authority is revalidated through the
issuance of a new LA. However, a Letter of Authority can be revalidated
Only once, for LAs issued in the Revenue Regional Offices or the Revenue District Offices; or
Twice, in the case of LAs issued by the National Office.
Any suspended LA(s) must be attached to the new LA issued (RMO 38-88).
6. How much time does a Revenue Officer have to conduct an audit?A Revenue Officer is allowed
only one hundred twenty (120) days from the date of receipt of a Letter of Authority by the Taxpayer to
conduct the audit and submit the required report of investigation. If the Revenue Officer is unable to
submit his final report of investigation within the 120-day period, he must then submit a Progress
Report to his Head of Office, and surrender the Letter of Authority for revalidation.
7. How is a particular taxpayer selected for audit?Officers of the Bureau (Revenue District Officers,
Chief, Large Taxpayer Assessment Division, Chief, Excise Taxpayer Operations Division, Chief, Policy
Cases and Tax Fraud Division) responsible for the conduct of audit/investigation shall prepare a list of
all taxpayer who fall within the selection criteria prescribed in a Revenue Memorandum Order issued
by the CIR to establish guidelines for the audit program of a particular year. The list of taxpayers shall
then be submitted to their respective Assistant Commissioner for pre-approval and to the
Commissioner of Internal Revenue for final approval. The list submitted by RDO shall be preapproved by the Regional Director and finally approved by Assistant Commissioner, Assessment
Service (RMOs 64-99, 67-99, 18-2000 and 19-2000).
8. How many times can a taxpayer be subjected to examination and inspection for the same taxable
year? A taxpayers books of accounts shall be subjected to examination and inspection only once for
a taxable year, except in the following cases:
When the Commissioner determines that fraud, irregularities, or mistakes were committed by
Taxpayer;
When the Taxpayer himself requests a re-investigation or re-examination of his books of accounts;
When there is a need to verify the Taxpayers compliance with withholding and other internal revenue
taxes as prescribed in a Revenue Memorandum Order issued by the Commissioner of Internal
Revenue.
When the Taxpayers capital gains tax liabilities must be verified; and
When the Commissioner chooses to exercise his power to obtain information relative to the
examination of other Taxpayers (Secs. 5 and 235, NIRC).
9. What are some of the powers of the Commissioner relative to the audit process?In addition to the
authority of the Commissioner to examine and inspect the books of accounts of a Taxpayer who is
being audited, the Commissioner may also:

Obtain data and information from private parties other than the Taxpayer himself (Sec.5, NIRC); and
Conduct inventory and surveillance, and prescribe presumptive gross sales and receipts (Sec. 6,
NIRC).
10. What is a Notice for Informal Conference ?A Notice for Informal Conference is a written notice
informing a Taxpayer that the findings of the audit conducted on his books of accounts and accounting
records indicate that additional taxes or deficiency assessments have to be paid.
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. The Taxpayer shall then have fifteen (15) days from
the date of his receipt of the Notice for Informal Conference to explain his side.
11. Within what time period must an assessment be made?An assessment must be made within three
(3) years from the last day prescribed by law for the filing of the tax return for the tax that is being
subjected to assessment or from the day the return was filed if filed late. However, in cases involving
tax fraud, the Bureau has ten (10) years from the date of discovery of such fraud within which to make
the
assessment.
Any assessments issued after the applicable period are deemed to have prescribed, and can no
longer be collected from the Taxpayer, unless the Taxpayer has previously executed a Waiver of
Statute of Limitations.
12. What is "Jeopardy Assessment"? A Jeopardy Assessment is a tax assessment made by an
authorized Revenue Officer without the benefit of complete or partial audit, in light of the ROs belief
that the assessment and collection of a deficiency tax will be jeopardized by delay caused by the
Taxpayers failure to:
Comply with audit and investigation requirements to present his books of accounts and/or pertinent
records, or
Substantiate all or any of the deductions, exemptions or credits claimed in his return.
13. What is a Pre-Assessment Notice (PAN)? The Pre-Assessment Notice is a communication issued
by the Regional Assessment Division, or any other concerned BIR Office, informing a Taxpayer who
has been audited of the findings of the Revenue Officer, following the review of these findings.
If the Taxpayer disagrees with the findings stated in the PAN, he shall then have fifteen (15) days from
his receipt of the PAN to file a written reply contesting the proposed assessment.
14. Under what instances is PAN no longer required? A Preliminary Assessment 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 liability shall be sufficient:
When the finding for any deficiency tax is the result of mathematical error in the computation of the
tax appearing on the face of the tax return filed by the taxpayer; or
When a discrepancy has been determined between the tax withheld and the amount actually remitted
by the withholding agent; or
When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a
taxable period was determined to have carried over and automatically applied the same amount
claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding
taxable year; or
When the excise tax due on excisable articles has not been paid; or
When an article locally purchased or imported by an exempt person, such as, but not limited to,
vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to nonexempt persons.
15. What is a Notice of Assessment/Formal Letter of Demand?
A Notice of Assessment is a declaration of deficiency taxes issued to a Taxpayer who fails to respond
to a Pre-Assessment Notice within the prescribed period of time, or whose reply to the PAN was
found to be without merit. The Notice of Assessment shall inform the Taxpayer of this fact, and that

the report of investigation submitted by the Revenue Officer conducting the audit shall be given due
course.
The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state
the facts, the law, rules and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and the notice of assessment shall be void.
TAXPAYERS OBLIGATIONS AND PRIVILEGES
16. What is required of a taxpayer who is being audited?A Taxpayer who is being audited is obliged
to:
Duly acknowledge his receipt of the appropriate Letter of Authority upon its presentation by the
Revenue Officer authorized to conduct the audit by affixing in the Letter of Authority the name of the
recipient and the date of receipt.
Present within a reasonable period of time, his books of accounts and other related accounting
records that may be required by the Revenue Officer; and
Submit the necessary schedules as may be requested by the Revenue Officer within a reasonable
amount of time from his (Taxpayers) receipt of the Letter of Authority.
17. What is the recourse of a Taxpayer who cannot submit the documents being required of him within
the prescribed period of time? If a Taxpayer, believing that he cannot present his books of accounts
and/or other accounting records, intends to request for more time to present these documents in order
to avoid the issuance of a Jeopardy Assessment, the Taxpayer may execute what is referred to as a
Waiver of the Statute of Limitations.
18. What is a Waiver of the Statute of Limitations? The Waiver of the Statute of Limitations is a signed
statement whereby the Taxpayer conveys his agreement to extend the period within which the Bureau
may validly issue an assessment for deficiency taxes. If a Taxpayer opts to execute a Waiver of the
Statute of Limitations, he shall likewise be, in effect, waiving his right to invoke the defense of
prescription for assessments issued after the reglementary period.
No Waiver of the Statute of Limitations shall be considered valid unless it is accepted by a duly
authorized Bureau official.
19. If a Taxpayer does not agree with the assessment made following an audit, can he protest this
Assessment?Yes, he can. A Taxpayer has the right to contest an assessment, and may do so by filing
a letter of protest stating in detail his reasons for contesting the assessment.
20. What are the characteristics of a valid protest? A protest is considered valid if it satisfies the
following conditions:
It is made in writing, and addressed to the Commissioner of Internal Revenue;
It contains the information, and complies with the conditions required by Sec. 6 of Revenue
Regulations No. 12-85; to wit:
a.) Name of the taxpayer and address for the immediate past three (3) taxable year.
b.) Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence
he intends to present if it is a request for investigation.
c.) The taxable periods covered.
d.) Assessment number.
e.) Date of receipt of assessment notice or letter of demand.
f.) Itemized statement of the findings to which the taxpayer agrees as a basis for computing the tax
due, which amount should be paid immediately upon the filing of the protest. For this purpose, the
protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first.
g.) The itemized schedule of the adjustments with which the taxpayer does not agree.
h.) A statement of facts and/or law in support of the protest.
The taxpayer shall state the facts, applicable law, rules and regulations or jurisprudence on which his
protest is based, otherwise, his protest shall be considered void and without force and effect on the
event the letter of protest submitted by the taxpayer is accepted, the taxpayer shall submit the

required documents in support of his protest within sixty (60) days from date of filing of his letter of
protest, otherwise, the assessment shall become final, executory and demandable.
It is filed within thirty (30) days from the Taxpayers receipt of the Notice of Assessment and formal
Letter of Demand.
21. In the event the Commissioners duly authorized representative denies a Taxpayers protest, what
alternative course of action is open to the Taxpayer? If a protest filed by a Taxpayer be denied by the
Commissioners duly authorized representative, the Taxpayer may request the Commissioner for a
reconsideration of such denial and that his tax case be referred to the Bureaus Appellate Division.
The Appellate Division serves as a "Court", where both parties, i.e. the Revenue Officer on one hand,
and the Taxpayer on the other, can present testimony and evidence before a Hearing Officer, to
support their respective claims.
22. What recourse is open to a Taxpayer if his request for reconsideration is denied or his protest is
not acted?
Should the Taxpayers request for reconsideration be denied or his protest is not acted upon within
180 days from submission of documents by the Commissioner, the Taxpayer has the right to appeal
with the Court of Tax Appeals (CTA).
Any appeal must be done within thirty (30) days from the date of the Taxpayers receipt of the
Commissioners decision denying the request for reconsideration or from the lapse of the 180 day
period counted from the submission of the documents. (Sec. 228 of the Tax Code, as amended).
23. If the Taxpayer is not satisfied with the CTAs decision, can he appeal the decision to a higher
Court? Yes, he can. Decisions of the Court of Tax Appeals may be appealed with the Court of Appeals
within fifteen (15) days from the Taxpayers receipt of the CTAs decision. In the event that the
Taxpayer is likewise unsatisfied with the decision of the Court of Appeals, he may appeal this decision
with the Supreme Court.
24. Can a Taxpayer claim a refund or tax credit for erroneously or illegally collected taxes? Yes, he
can. The Taxpayer may file such a claim with the Commissioner of Internal Revenue (Sec.229, NIRC),
within two (2) years from the payment of the tax or penalty sought to be refunded. Failure of the
Taxpayer to file such a claim within this prescribed period shall result in the forfeiture of his right to the
refund or tax credit.
25. If a Taxpayer has filed a claim for refund and the Bureau has yet to render a decision on this
claim, can the Taxpayer elevate his claim to the CTA?
Yes, he can, if the two (2) year period stated above is about to end, and the Commissioner has yet to
render a decision on the claim. (Gibbs v. Collector, L-13453, February 29, 1960).
REMEDIES OF THE BUREAU IN THE AUDIT PROCESS AND COLLECTION OF DELINQUENT
ACCOUNTS
26. What means are available to the Bureau to compel a Taxpayer to produce his books of accounts
and other records? A Taxpayer shall be requested, in writing, not more than two (2) times, to produce
his books of accounts and other pertinent accounting records, for inspection. If, after the Taxpayers
receipt of the second written request, he still fails to comply with the requirements of the notice, the
Bureau shall then issue him a Subpoena Duces Tecum.
27. What course of action shall the Bureau take if the Taxpayer fails to comply with the Subpoena
Duces Tecum?
If, after the Taxpayer fails, refuses, or neglects to comply with the requirements of the Subpoena
Duces Tecum, the Bureau may:
File a criminal case against the Taxpayer for violation of Section 5 as it relates to Sections 14 and
266, of the NIRC, as amended; and/or

Initiate proceedings to cite the Taxpayer for contempt, under Section 3(f), Rule 71 of the Revised
Rules of Court.
28. What alternatives are open to Government for the collection of delinquent accounts?
Once an assessment becomes final and demandable, the Government may employ any, or all, of the
following remedies for the collection of delinquent accounts:
Distraint of personal property;
Levy of real property belonging to the Taxpayer;
Civil Action; and
Criminal Action.
29. What is "Distraint of Personal Property"? Distraint of personal property involves the seizure by the
Government of personal property - tangible or intangible - to enforce the payment of taxes, followed
by the public sale of such property, if the Taxpayer fails to pay the taxes voluntarily.
30. What is "Levy of Real Property"? Levy of real property refers to the same act of seizure, but in this
case of real property, and interest in or rights to such property in order to enforce the payment of
taxes. As in the distraint of personal property, the real property under levy shall be sold in a public
sale, if the taxes involved are not voluntarily paid following such levy.
31. In what time period must collection be made? Any internal revenue tax, which has been assessed
within the period prescribed shall be collected within three (3) years from date of assessment.
However, tax fraud cases may be collected by distraint or levy or by a court proceeding within five (5)
years from assessment of the tax or from the last waiver.

RevenueRegionNo.13CEBUCITY
OfficeAddress:BIRRegionalOfficeBldg.,ArchbishopReyesAvenue,CebuCity
RegionalDirector:HERMENOA.PALAMINE(OIC)
directno.:(032)2328575
telefax:(032)2602141
Asst.RegionalDirector:MANUELV.MAPOY
directno.:(032)2321240
telefax.:(032)2315225
LEGALDIVISION
Chief:
telefax:(032)2325546/2328577
Asst.Chief:NERIB.YU
telefax:(032)2328577
ASSESSMENTDIVISION
Chief:
telefax:(032)2335647
Asst.Chief:RHODAA.VIRGANIO
directno.:(032)2321188/2333691
COLLECTIONDIVISION
Chief:ZENAIDAB.PANCITO
directno.:(032)2328578
Asst.Chief:
directno.:(034)2328582
ADMINISTRATIVEANDHUMANRESOURCEMANAGEMENTDIVISION
Chief:CHONAMARIEO.BUAC
directno.:(032)2328579
Asst.Chief:GLORIAF.PEQUE(OIC)
directno.:(032)2315458
telefax:(032)2321187
REGIONALINVESTIGATIONDIVISION
Chief:ZENNENA.TABANAO
directno.:(032)2328570
Asst.Chief:
telefax:(032)2332876
FINANCEDIVISION
Chief:REMIGIAB.LAURON
directno.:(032)2321184(fax)
Asst.Chief:BELENM.DABASOL(OIC)
directno.:(032)4127255/2333699
TAXPAYERS'ASSISTANCEUNIT:
Head:
directno.:(032)3211593
COMMISSIONONAUDIT:
Auditor:(032)2333696

PENALTIESFORLATEFILINGOFTAXRETURNS
A.ForlatefilingofTaxReturnswithTaxDuetobepaid,thefollowingpenaltieswillbeimposeduponfiling,inaddition
tothetaxdue:
1.Surcharge
NIRCSEC.248.CivilPenalties.
(A)Thereshallbeimposed,inadditiontothetaxrequiredtobepaid,apenaltyequivalenttotwentyfivepercent
(25%)oftheamountdue,inthefollowingcases:
(1)FailuretofileanyreturnandpaythetaxduethereonasrequiredundertheprovisionsofthisCodeorrules
andregulationsonthedateprescribed;or
(2)UnlessotherwiseauthorizedbytheCommissioner,filingareturnwithaninternalrevenueofficerotherthan
thosewithwhomthereturnisrequiredtobefiled;or
(3)Failuretopaythedeficiencytaxwithinthetimeprescribedforitspaymentinthenoticeofassessment;or
(4)Failuretopaythefullorpartoftheamountoftaxshownonanyreturnrequiredtobefiledunderthe
provisionsofthisCodeorrulesandregulations,orthefullamountoftaxdueforwhichnoreturnisrequiredto
befiled,onorbeforethedateprescribedforitspayment.
2.Interest
NIRCSEC.249.Interest.
(A)InGeneral.Thereshallbeassessedandcollectedonanyunpaidamountoftax,interestattherateoftwenty
percent(20%)perannum,orsuchhigherrateasmaybeprescribedbyrulesandregulations,fromthedateprescribed
forpaymentuntiltheamountisfullypaid.
3.Compromise
NIRCSEC.255.FailuretoFileReturn,SupplyCorrectandAccurateInformation,PayTaxWithholdand
RemitTaxandRefundExcessTaxesWithheldonCompensation.AnypersonrequiredunderthisCodeorby
rulesandregulationspromulgatedthereundertopayanytaxmakeareturn,keepanyrecord,orsupplycorrectthe
accurateinformation,whowillfullyfailstopaysuchtax,makesuchreturn,keepsuchrecord,orsupplycorrectand
accurateinformation,orwithholdorremittaxeswithheld,orrefundexcesstaxeswithheldoncompensation,atthe
timeortimesrequiredbylaworrulesandregulationsshall,inadditiontootherpenaltiesprovidedbylaw,upon
convictionthereof,bepunishedbyafineofnotlessthanTenthousandpesos(P10,000)andsufferimprisonmentof
notlessthanone(1)yearbutnotmorethanten(10)years.
Anypersonwhoattemptstomakeitappearforanyreasonthatheoranotherhasinfactfiledareturnorstatement,or
actuallyfilesareturnorstatementandsubsequentlywithdrawsthesamereturnorstatementaftersecuringtheofficial
receiving seal or stamp of receipt of internal revenue office wherein the same was actually filed shall, upon
convictiontherefor,bepunishedbyafineofnotlessthanTenthousandpesos(P10,000)butnotmorethanTwenty
thousandpesos(P20,000)andsufferimprisonmentofnotlessthanone(1)yearbutnotmorethanthree(3)years.
In addition, Annex A of Revenue Memorandum Order (RMO) No. 192007 provides for the Consolidated Revised
ScheduleofCompromisePenaltiesforViolationsoftheNationalInternalRevenueCode(NIRC),whichcanbeaccessed
viathislink:AnnexA
Frompage1,lastparagraphinAnnexAofRMONo.192007
TAX
CODE
SEC
255

NATUREOFVIOLATION

CRIMINALPENALTY
IMPOSED

AMOUNTOFCOMPROMISE

Failure to fileand/or pay Fine of not less than P10,000 and Iftheamountoftaxunpaid
anyinternalrevenue tax at thetime or imprisonmentofnotlessthanone(1)
Butdoes
Compromise
timesrequiredbylaworregulation
yearbutnotmorethan10years
Exceeds
notexceed
is
Pxxx

P500

P200

500

1,000

400

1,000

2,000

700

2,000

5,000

1,000

5,000

7,500

1,500

7,500

10,000

2,000

10,000

15,000

3,000

15,000

20,000

4,000

20,000

30,000

6,000

30,000

50,000

8,500

50,000

100,000

12,000

100,000

500,000

16,000

500,000

1,000,000

20,000

1,000,00
0

5,000,000

25,000

5,000,00
0

xxx

50,000

B.ForlatefilingofTaxReturnswithNOTaxDuetobepaid,thecompromisepenaltywillbeimposeduponfilingofthe
TaxReturnbasedonthefollowing:
1.ForviolationsoftheNIRCprovisionswhicharesubjecttocompromise,thereferenceisfoundinpage2ofAnnex
AofRMONo.192007.
TAX
CODE
SEC
255

NATUREOFVIOLATION
Failuretomake/file/submitanyreturn
or supply correct information at the
time or times required by law or
regulation

CRIMINALPENALTY
IMPOSED

AMOUNTOFCOMPROMISE

FineofnotlessthanP10,000and Ifgrossannualsales,earningsorreceipts;
imprisonmentofnotlessthanone orgrossestateorgift
(1)yearbutnotmorethanten(10)
Butdoesnot Compromise
years
Exceeds
exceed
is
Pxxx

P10,000

P200

10,000

20,000

400

20,000

30,000

600

30,000

50,000

1,000

50,000

75,000

1,500

75,000

100,000

2,000

100,000

300,000

3,000

300,000

500,000

5,000

500,000

1,000,000

7,500

1,000,000

5,000,000

10,000

5,000,000

10,000,000

15,000

10,000,000

25,000,000

20,000

25,000,000

xxx

25,000

2.ForviolationsoftheNIRCprovisionswhichmaybethesubjectofcriminalactions,Section250oftheNIRCwill
apply

as

follows:

NIRCSEC.250.FailuretoFileCertainInformationReturns.Inthecaseofeachfailuretofileaninformation
return,statementorlist,orkeepanyrecord,orsupplyanyinformationrequiredbythisCodeorbytheCommissioner

onthedateprescribedtherefor,unlessitisshownthatsuchfailureisduetoreasonablecauseandnottowillful
neglect,thereshall,uponnoticeanddemandbytheCommisssioner,bepaidbythepersonfailingtofile,keepor
supplythesame,Onethousandpesos(1,000)foreachfailure:Provided,however,Thattheaggregateamounttobe
imposedforallsuchfailuresduringacalendaryearshallnotexceedTwentyfivethousandpesos(P25,000).
C.ForlatefilingofStatements/ReportsrequiredtobefiledwithNOTaxDuetobepaid,thecompromisepenaltywillbe
imposeduponfilingoftheTaxReturnbasedonthefollowing:
NIRCSEC.275.ViolationofOtherProvisionsofthisCodeorRulesandRegulationsinGeneral.Anyperson
whoviolatesanyprovisionofthisCodeoranyruleorregulationpromulgatedbytheDepartmentofFinance,for
whichnospecificpenaltyisprovidedbylaw,shall,uponconvictionforeachactoromission,bepunishedbyafineof
notmorethanOnethousandpesos(P1,000)orsufferimprisonmentofnotmorethansix(6)months,orboth.