Delinquent Taxes? Here’s How the BIR Builds a Case Against Your Business

If your business has delinquent taxes, the Bureau of Internal Revenue (BIR) is more than just aware—they may already be building a case against you.

Contrary to what many business owners believe, the BIR doesn’t need to catch you red-handed. Through a combination of data analytics, documentation reviews, and field investigations, the BIR can build a strong legal case—even without your cooperation.

In this post, we break down how the BIR identifies, investigates, and prepares cases against businesses that fail to pay their taxes—and what you can do before it’s too late.

1. It Starts with Data Matching

The BIR gathers and compares information from various sources to spot inconsistencies, such as:

Your filed tax returns

Bank records (via Anti-Money Laundering Council cooperation)

Reports from suppliers, customers, or third-party platforms

SEC or LGU filings

Import and export data from the Bureau of Customs

If your declared income doesn’t match your spending or assets, that’s the first red flag.

Example: A business declares ₱500,000 in annual revenue, but shows ₱2 million in inventory purchases or bank deposits. That gap raises suspicion.

2. Field Investigations and Surveillance

The BIR may also conduct on-site inspections or tax mapping activities, especially for businesses with physical stores or service locations. Their officers check for:

Valid BIR registration and signage

Proper issuance of BIR-registered receipts/invoices

Employee registration and withholding compliance

Consistency of sales activity with reported revenue

These unannounced visits often provide the BIR with photographic and testimonial evidence that can support a case.

3. Issuance of a Letter of Authority (LOA)

Once red flags are confirmed, the BIR issues a Letter of Authority (LOA), formally authorizing revenue officers to audit your books. At this stage, they’ll request:

Books of accounts

Filed tax returns

Receipts, invoices, and billing statements

Payroll records

Bank statements and contracts

Failure to comply—or submitting incomplete records—can be treated as obstruction or concealment.

4. Reconciliation and Assessment of Deficiencies

The BIR examiners then perform a reconciliation audit, checking for:

Underreported income

Excessive deductions

Improper VAT claims

Unremitted withholding taxes

If they find discrepancies, they compute your tax deficiency, including penalties and interest. This culminates in the issuance of a:

Notice of Discrepancy (NOD)

Preliminary Assessment Notice (PAN)

Final Assessment Notice (FAN)

The FAN serves as the basis for tax collection or legal action.

5. Building a Legal Case (If Needed)

If the business refuses to settle or disputes the findings without strong evidence, the BIR may escalate the matter by:

Referring the case to the Legal Division for tax delinquency enforcement

Filing a criminal complaint with the Department of Justice (DOJ) for willful tax evasion

Publishing the case under the Run After Tax Evaders (RATE) Program

Reminder: You don’t need to be convicted to face asset garnishment or business closure—administrative remedies allow the BIR to collect even during the appeal process.

6. Enforcement and Collection Measures

Once a case is finalized, the BIR may take the following actions:

Issue warrants of distraint or levy (seizing property or bank assets)

Garnish bank accounts

Padlock business premises for failure to pay or comply

Blacklist the taxpayer from government bidding or financing programs

These are not just threats—they are enforceable under the National Internal Revenue Code.

What You Can Do (Before It Gets This Far)

If you suspect you’re behind on taxes, act fast:

Review your records and identify gaps

File or amend delinquent returns immediately

Consult a tax professional to assess your risk

Consider compromise settlements or installment options

Respond to BIR notices on time—silence only worsens your case

Final Thoughts

The BIR doesn’t build cases overnight. It’s a systematic process based on facts, documents, and patterns of non-compliance. If you think the agency isn’t watching—think again.

Don’t wait until you’re issued a warrant or locked out of your business. The sooner you take action, the better your chances of resolving the issue without legal consequences.

Need help negotiating with the BIR or settling your tax delinquency? Our team of tax lawyers and accountants is here to help. Book a confidential consultation today.