BIR Letter of Authority LoA cancel in 30 days RAMO 1-2000 stop BIR audit subpoena duces tecum

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The Supreme Court ruling in the case of “Medicard Philippines, Inc. vs. Commissioner of Internal Revenue” (G.R. No. 222743, April 5, 2017) states that no assessments can be issued or no assessment functions or proceedings can be done without the prior approval and authorization of the Commissioner of Internal Revenue (CIR) or his duly authorized representative through a LOA. Any tax assessment issued without an LOA is a violation of the taxpayer’s right to due process and is therefore “inescapably void.” Prior to that, the taxpayer can be issued a letter notice to notify the taxpayer of any discrepancy in the reports. Letter notices cannot replace LOAs, and as such do not authorize further examinations or assessments.

This applies even if the letter notice already contains the exact deficiency determined via the BIR’s database. In such cases, letter notices will need to be converted into letters of authority before assessments can be issued.

LOAs need to be specific, containing which types of taxes will be audited and for what taxable year. While sanctioning the audit of all types of taxes is allowed, LOAs can only cover one taxable year. For audits of multiple years, separate LOAs need to be issued.

The LOA needs to be served to the taxpayer within 30 calendar days of its issuance, otherwise it is voided and will need to be revalidated.

Once the LOA has been issued, the actual audit can begin. The LOA will contain which documents need to be submitted to the BIR. Failure to provide the requested documents will subject the taxpayer to the issuance of Subpoena Duces Tecum.
Fundamental to this is Section 228 of the Tax Code, as amended. It clearly requires that the taxpayer be notified in writing that he is liable for deficiency taxes through the issuance and delivery of notices –i.e. Preliminary Assessment Notice (PAN), Formal Letter of Demand and Final Assessment Notice (FLD/FAN). He must be informed of the facts and the law upon which the assessment is made; otherwise, such issued notice shall be deemed void. Moreover, the same provision requires that the decision of the Commissioner of Internal Revenue (CIR) or his duly authorized representative on a disputed assessment state the facts, laws, and rules and regulations, or jurisprudence on which such decision is based. Failure to do so would invalidate the Final Decision on a Disputed Assessment (FDDA).

In May 2019, the BIR issued Revenue Memorandum Order (RMO) No. 40-2019 prescribing the procedures for the proper service of assessment notices with the provisions of Section 3.1.6 of Revenue Regulations (RR) No. 18-2013.

The issuance provides that the assessment notices (i.e. PAN, FLD/FAN, and FDDA) shall be served to the taxpayer by delivery of a notice through personal service to his registered or known address, or wherever he may be found.

Only in cases where personal service is not possible (e.g. when the taxpayer is not present at the registered or known address), the Revenue Officers (ROs) assigned to the case shall serve the notice either by substituted service or by mail. In a substituted service, the assessment notice may be left at the taxpayer’s registered address with his clerk or with a person having charge thereof. The same shall also apply if the known address is a place where the business activities of the taxpayer are conducted. However, if the known address is the place of residence, substituted service can be made by leaving the copy with a person of legal age residing therein.

In cases where no person is found at the party’s registered or known address, or a party is found but refuses to receive the assessment notice, the ROs may resort to constructive service by bringing a barangay official and two (2) disinterested witnesses (i.e. persons of legal age other than employees of the BIR) so that they may personally observe and attest to such absence or refusal, as the case may be. CTTO
Emelino T Maestro
TaxSpecialista
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