The BIR Letter of Authority authorizes or empowers a designated Revenue Officer to examine, verify and scrutinize a taxpayer’s books and records in relation to his internal revenue tax liabilities for a particular period.
The Revenue Officers have up to 180 days for RDO cases and 240 days for LT cases from the date of issuance of LOA to complete the audit, otherwise it is considered invalid and unenforceable.
Who are covered?
In general, all taxpayers are considered as possible candidates for audit but they are chosen based on the following reasons:
- Claims for tax credits
- Request for tax clearance
- Claims for VAT refund
- Priority audit cases which have been selected by the BIR System based on prescribed selection criteria tied to identified risks, using filed returns and other tax information.
What is a valid LOA?
- Should only be served by the Revenue Officer assigned to the case, who must be in proper uniform and proper identification card.
- Must be served at the place of business of the Taxpayer.
- Must be signed by the Commissioner of Internal Revenue (CIR) or duly assigned authorized representative such as the Regional Director or Assistant Commissioner of Large Taxpayer Service.
- The audit covered must be conducted within the 3-year prescriptive period (from the date the tax return was filed or was due).
- Should specify the Taxpayer’s name, TIN, tax type(s) and taxable periods to be audited.
Non-compliance with any of the criteria listed above shall entitle the Taxpayer to question the validity of the LOA and reject its enforcement.
Common findings:
- Unsupported expenses
- Make sure that claimed expenses are properly documented and substantiated according to BIR standards.
- Books of Accounts are not properly maintained or updated
- Check if recent business transactions are recorded.
- Failure to withhold and/or remit withholding tax
- Check if tax is withheld for certain payments made such as rentals, professional fees, commissions and subcontractors.
- Disallowance of Input VAT claimed
- Ensure that expense receipts received from VAT registered suppliers are valid and in compliance with Sec. 3 of Revenue Regulations No. 07-2024.
- Claimed Creditable Withholding Taxes (CWT) are outside the allowable taxable period
- Claiming of Creditable Withholding Tax (CWT) is only valid if the corresponding income and withheld tax were reported in the same taxable period.
- Failure to withhold and remit final tax on dividends
- Final tax is to be imposed for certain passive income such as dividends received from a Domestic Corporation at the rate of 10%.
- Unpaid Documentary Stamp Tax on Loan agreement and/or Lease contract
- Under Sec. 173 of the NIRC corresponding documentary stamp taxes are imposed and must be remitted for certain contracts.
- Inconsistencies between filed tax returns and Annual Income Tax Return
- Taxpayers are required to file various monthly and quarterly tax returns which should ultimately reconcile with the figures reported in the Annual ITR form.
Need help with your LOA? Contact us through our Facebook page or email us at mpcamaso@mpca.com.ph.
References:
Revenue Audit Memorandum Order No. 1-2000
Revenue Audit Memorandum Order No. 1-2020
Revenue Memorandum Circular No. 82-2022
Revenue Memorandum Order No. 6-2023
National Revenue Code of 1997 as Amended
