Business Mirror

Atty. Mabel L. Buted discusses the instances where the taxpayer may be subjected to multiple tax audits.

Multiple Tax Audits

By: Atty. Mabel L. Buted

Taxpayers get anxious whenever they receive Letters of Authority (“LOA”) from the tax authority. This is normal because the receipt of a LOA by a taxpayer signals the conduct of a tax audit. And whenever there is audit, there is corresponding assessment for deficiency taxes. And whenever there is deficiency tax assessment, the taxpayer has to undergo the tiresome process of contesting the same, and if unsuccessful, will eventually result in the payment in full or portion of the assessment.

Taxpayers are very much familiar with the LOA issued for the conduct of a regular audit or investigation. Here, an LOA is issued in accordance with the BIR’s power to examine the tax returns of a taxpayer and to assess the correct amount of taxes due. The LOA authorizes specific BIR revenue officers to examine the taxpayer’s books of accounts and other accounting records for the taxable period indicated in the letter. Upon receipt of the letter, the taxpayer is required to make available or submit required documents, books and records for the examiners to be able to conduct the investigation. Assessment notices may then be issued containing the audit findings. In all the stages of the assessment process, the taxpayer may contest the audit findings in accordance with the remedies available to it until the issues are resolved or the taxes finally determined to be due are paid.

May a taxpayer be subjected to another round of examination for the same period?

A LOA may also be issued in cases other than in a regular tax audit. Note that the BIR has also the power to conduct inventory-taking and observation or surveillance of a taxpayer’s business operations. The BIR exercises this power if it has reason to believe that a taxpayer is not declaring its correct income, sales or receipts for internal revenue tax purposes. A Mission Order is normally issued for this purpose. If the result of the surveillance activities indicates that the veracity of the taxpayer’s accounting records is not reliable, the BIR may issue LOA, assess the taxpayer, and issue assessment notices (RMO No. 03-2009).

The taxpayer may also be audited by the BIR in instances when deficiency tax arises from incorrect information stated on the face of the tax returns, late filing of tax returns and non-payment or underpayment of taxes (RMO No. 17-2006). In these cases, Returns Processing System (RPS) Audit Results/Assessment Notices are issued to the concerned taxpayer. These are different and separate from the assessment notices issued under the regular tax audit. As a rule, the RPS Assessment Notice must also be preceded by a LOA except in cases when no preliminary assessment notice (PAN) is required, that is: when the deficiency tax is the result of mathematical error in the computation; when a discrepancy is determined between the tax withheld and the amount actually remitted by the withholding agent; when a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax has carried over the same to the succeeding taxable year; when the excise tax due has not been paid; and when the article locally purchased or imported by an exempt person has been transferred to non-exempt persons (CTA Case No. 9766, July 15, 2019).

It is then possible that a taxpayer may receive more than one LOA for the same taxable year under the different powers of the BIR. The current system and procedures of the BIR apparently makes multiple tax audits possible.

It is not then surprising when we hear taxpayers worrying when they receive assessment notices after a Mission Order while a regular tax audit is on-going. Some also complain when RPS Audit Results/Assessment Notices are issued requiring taxpayers to pay penalties for alleged late payment of taxes for a particular period, even after the regular tax audit for the same period was already completed and terminated.

Why can’t the taxpayer be subjected to tax audit only once? Shouldn’t all deviations from compliance be covered in one audit?

In case of multiple tax audits, what can taxpayers do? Taxpayers may seek relief from the tax court by questioning the issuance of the other LOAs and assessments emanating from the LOAs. A LOA may be invalidated if it covers the same taxable period that was previously investigated by the BIR under another LOA (CTA Case No. 10618, March 6, 2023).

The conduct of multiple tax audits are among the areas that need to be reviewed for the protection of the taxpayers. As our laws are being reviewed, I hope that this area should also be given the same attention.