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For many business owners, the phrase “BIR investigation” immediately sparks worry and uncertainty. Understanding the typical timeline and process of a Bureau of Internal Revenue (BIR) investigation can help you prepare and respond more effectively—especially if your business has delinquent tax obligations.
In this article, we walk you through the key stages from the initial audit to possible sanctions, so you know what to expect at each step of a BIR investigation.
Stage 1: Identification and Triggering of Investigation
The BIR begins by identifying potential tax delinquencies through data-matching and red flags such as:
Late or missing tax returns
Significant discrepancies in reported income vs. third-party data
Unpaid tax liabilities
Complaints or referrals from other agencies
Once a business is flagged, the BIR may conduct tax mapping or preliminary inquiries to verify initial suspicions.
Stage 2: Issuance of Letter of Authority (LOA)
If the BIR decides to proceed, they issue a Letter of Authority (LOA)—a formal document authorizing revenue officers to audit specific tax types and periods.
The LOA names the revenue officers assigned
Specifies the scope (tax types and taxable periods)
Allows officers to examine books, records, and documents
Important: The BIR cannot conduct an audit without a valid LOA.
Stage 3: Conduct of Audit
During the audit phase, the assigned revenue officers:
Examine books of accounts, invoices, receipts, bank statements, and contracts
Interview company personnel if necessary
Verify accuracy and completeness of tax filings
Look for underreported income, excessive deductions, unremitted taxes, and other discrepancies
This stage can last from several weeks to months depending on the complexity and size of your business.
Stage 4: Preliminary Findings and Notice of Discrepancy (NOD)
After the audit, the BIR issues a Notice of Discrepancy (NOD) if they find irregularities.
The NOD lists discrepancies and requests explanations or corrections
You typically have 15 days to respond with supporting documents or clarification
Failure to respond may lead to automatic assessment.
Stage 5: Preliminary Assessment Notice (PAN)
If explanations are insufficient or discrepancies remain unresolved, the BIR issues a Preliminary Assessment Notice (PAN) indicating the tax deficiency and computed penalties.
You may file a protest or request for reconsideration within 15 to 30 days
Ignoring the PAN can escalate the case
Stage 6: Final Assessment Notice (FAN)
Should the protest be denied or if no protest is filed, the BIR issues a Final Assessment Notice (FAN). This is the official demand for payment of the assessed tax deficiency, plus penalties and interest.
You must settle or dispute the FAN within 30 days
Failure to act can lead to collection actions
Stage 7: Enforcement and Collection
If the FAN remains unsettled, the BIR may initiate enforcement actions such as:
Issuance of Warrant of Distraint and Levy (seizing assets or bank funds)
Garnishment of accounts
Padlocking or closure of business premises
Referral for criminal prosecution in cases of willful tax evasion
Stage 8: Legal Proceedings (If Applicable)
If you dispute the FAN and exhaust administrative remedies, the case may be elevated to the Court of Tax Appeals (CTA).
You can contest assessments or collection actions
Legal proceedings may take months or years to resolve
How to Navigate the Timeline
Respond promptly to all BIR notices to avoid escalation
Maintain organized records to support your case
Consult tax or legal professionals early in the process
Explore options for compromise settlements or installment payments if you owe taxes
Final Thoughts
A BIR investigation is a serious matter but knowing the process and timeline empowers you to take control. The earlier you act, the better your chances of resolving issues with minimal penalties and business disruption.
Need assistance navigating a BIR audit or want to proactively check your compliance status? Our team of tax experts is ready to help. Schedule a consultation today.
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