Letter of Authority(LOA) and Tax Verification Notice (TVN) are commonly issued by the BIR to authorize a Revenue Officer (RO) under a particular Group Supervisor (GS) to examine taxpayer’s compliance of tax laws, rules and regulations with respect to a particular tax type (e.g. VAT, income tax, withholding taxes, etc.) in a particular taxable year. Issuance of LOA or TVN is coupled with request for documents and papers taxpayers are requred to submit. Based on those documents, the RO shall conduct its examination and verification the extent of compliance. Findings and observation is summarized in a Notice for Informal Conference where a taxpayer is invited for discussion for it it to give its side of the case. Should the taxpayer faile to furnish the required documents upon Final Request of the BIR, the latter may issue a sub poena deces tecum ordering the taxpayer to present the documents to the BIR-main office at a specified date and time. Further failure of the taxpayer to comply may constrain the BIR to file criminal charges against the taxpayer or principal officers for violation of the Tax Code.

During the informal conference, if the BIR is convinced that the taxpayer is justified in not being made to pay additional taxes, then the BIR will amend, revise or cancell is findings. If the taxpayer admits the tax liability, then it shall pay the assessment, inclusive of penalties, for the case to be closed. On the other hand, if the BIR will not be convinced, then the findings of the RO will be forwarded to the Assessment Division of the Revenue Region for the review and evaluation of such findings. If it finds in order, then it will issue a Preliminary Assessment Notice (PAN). The taxpayer then may pay on admission, otherwise, it has within fifteen (15) days from receipt to file a valid Protest to the PAN. For such purpose, the regulations determine the requirements for the validity of the Protest. Basically, a valid protest shall state in details the nature of the assessment, the factual and legal basis of its disagreement. For factual issues, the Assessment Division may refer back the docket of the case to the revenue district office (RDO) of origin for re-investigation or re-examination.

Should the assessment division feels that the Protest is insufficient to justify, then it will issue a Formal Assessment Notice (FAN or sometimes called Assessment Notice – Formal Letter of Demand or AN-FLD) with the 3-year period or 10-year period stated above, except if the parties agreed through a Waiver from the defense of prescription). The taxpayer may pay on admission, otherwise, it has within thirty (30) days from receipt, within which to Protest based on legal and factual basis, its disagreement. Related documents and papers supporting the Protest shall be submitted to the BIR. Failure to observe such 30-day and 60-day period shall make the assessment final and executory. This means that the BIR will proceed with the collection of the tax deficiency and the taxpayer has no other choice but to pay fully or based on compromise allowed by law, for it had lose each and every right to contest the assessment.

Upon the valid protest filed, the BIR shall either grant or deny, both either fully or partially. However, if within 180 days from the lapse of the sixty-day period above, the BIR has not decided yet, then the taxpayer shall elevate the case to the Court of Tax Appeals (CTA). Likewise, the taxpayer may elevate the case to CTA in case of denial by filing a Petition for Review.

The above process normally takes time, effort and resources. Thus, if the assessment is quite correct, it may be worth paying the tax at the earliest opportunity than proceeding withe the process as the interest on the deficiency tax is moving. CTA process will require hiring a counsel of choice to defend the case and may take too much time and effort.