How to Respond If Your Business Is Flagged by the BIR

Getting flagged by the Bureau of Internal Revenue (BIR) can be a stressful moment for any business owner. Whether it’s due to late filings, discrepancies in tax returns, or red flags in your financial records, a BIR investigation is something you can’t afford to ignore.

But here’s the good news: how you respond can make a huge difference in the outcome.

In this article, we’ll walk you through the practical steps to take if your business is flagged by the BIR, so you can protect your operations, minimize penalties, and stay in control.

1. Stay Calm and Review the Notice Carefully

When flagged, you may receive a Letter of Authority (LOA), a Notice of Discrepancy (NOD), or a Preliminary Assessment Notice (PAN). These documents contain important details such as:

The scope of the audit or investigation

The tax periods under review

The specific issues or discrepancies flagged

Don’t panic or respond emotionally. Instead, read the document carefully, note the deadlines, and keep a copy for your records.

2. Consult a Tax Professional Immediately

Before responding or submitting any documents, get professional help. A tax lawyer or accountant can:

Interpret the notice and determine its implications

Help you understand your rights and obligations

Guide you through the next steps without worsening the situation

Avoid trying to explain or negotiate directly with the BIR without proper guidance—it could hurt your case.

3. Organize Your Records

The BIR will request supporting documents like:

Books of accounts

Tax returns and attachments

Sales invoices and official receipts

Payroll records

Bank statements

Make sure all records are complete, accurate, and well-organized. Missing or inconsistent documents can lead to higher assessments and suspicion of fraud.

4. Prepare for Dialogue and Clarification

After the initial review, the BIR may present preliminary findings. You’ll be given a chance to:

Explain discrepancies

Submit additional documents

Rectify minor errors

This is your opportunity to clarify honest mistakes or negotiate a reasonable settlement. Being cooperative but cautious is key—never admit wrongdoing unless advised by your legal counsel.

5. Know Your Rights and Remedies

If you disagree with the BIR’s findings or believe the assessment is incorrect, you have the right to:

File a protest or request for reconsideration

Request a compromise settlement if applicable

Appeal to the Court of Tax Appeals in more serious cases

There are strict timelines for filing protests (usually within 30 days of receipt), so act quickly.

6. Avoid Making These Common Mistakes

Businesses under BIR scrutiny often make these costly errors:

Ignoring the notice or missing deadlines

Providing incomplete or misleading information

Attempting to “settle” informally or off-the-books

Failing to consult professionals until it’s too late

A careless response can escalate the case from administrative penalties to criminal prosecution.

7. Plan for Future Compliance

Once the case is resolved, take steps to prevent future issues:

Strengthen your accounting processes

Ensure timely filing and payment of all tax types

Educate your team on basic tax compliance

Consider periodic internal audits

BIR investigations often lead to better business discipline when taken seriously.

Final Thoughts

Being flagged by the BIR doesn’t mean the end of your business—but how you respond will determine what happens next. By acting promptly, getting expert help, and cooperating professionally, you can navigate the process with confidence and potentially reduce your tax liabilities.

Remember: The worst thing you can do is ignore the issue. The best thing you can do is face it head-on—with the right support.

Need help managing a BIR audit or responding to a tax notice? Contact our legal and tax advisory team today for a confidential consultation.