A call for a transparent and fair BIR audit program
By: Atty. Euney Marie J. Mata-Perez on December 18, 2025
THERE has been so much noise lately on the Bureau of Internal Revenue’s (BIR) issuance of letters of authority (LOAs) to taxpayers, particularly when these cover several years, resulting in taxpayers having to attend and defend assessments involving multiple years all at the same time.
There is no doubt that the Commissioner of Internal Revenue (CIR) or his duly authorized representatives are authorized to issue LOAs in the exercise of the CIR’s power to examine any taxpayer and assess the correct amount of tax. This power is enshrined in the National Internal Revenue Code (Tax Code). The issuance of a LOA in order to clothe revenue examiners with the authority to examine and audit books of accounts is an essential step. In numerous decisions, it has been held that the failure to issue a valid LOA violates the sacrosanct right of taxpayers to due process.
There are basic requirements in order for a LOA to be deemed validly issued. The LOA must be in writing and signed by the CIR himself or his duly authorized representatives, the revenue examiners must be specified and if there is a change of examiner, new LOAs must be issued, the LOA should cover only one taxable year and the LOAs should be properly served. Only the CIR, deputy commissioner, assistant commissioner/head revenue executive assistants (for large taxpayers), and regional directors are generally authorized to issue LOAs.
However, the bigger question is how are taxpayers selected for audit investigation and being subject to LOAs? Is there risk profiling? Is there prioritization?
The BIR supposedly adopts and implements a program that sets down the rules in prioritizing audits. The most recent issuance, as far as we know, is Revenue Memorandum Order (RMO) 6-2023. In this RMO, the BIR reiterated the rule that, in general, all taxpayers are considered possible candidates for audit and there are mandatory cases for audit. These mandatory cases include transactions where an audit is required as a condition precedent for the issuance of tax clearance and in processing of claims for tax credit or refund. The RMO, however, recognizes that the CIR may issue LOAs on “priority targets” for audit or investigation.
How are targets then prioritized and identified?
Theoretically, RMO 6-2023 recognizes that “risks” should be considered in selecting priority audit targets. It provides that priority audit cases are those electronically selected by the Internal Revenue Integrated System (IRIS)-Audit Module based on prescribed selection criteria pursuant to identified risks that need immediate action. The criteria should make use of information from filed tax returns and other pertinent tax information available in BIR systems and the selection codes for these are already embedded in the said module.
However, the issuance of numerous LOAs gives the taxpayers the impression that the standards or selection may not have been properly conveyed to taxpayers, or more so, may not have been properly observed and implemented.
In prioritizing a target, the BIR should be transparent and sensible. BIR examiners cannot repeatedly audit compliant and large taxpayers just because they want to meet their revenue targets. Prioritization should mean doing risk analysis.
As a reprieve to compliant or low-risk taxpayers, the BIR should consider granting taxpayers an audit reprieve.
Being audited by the BIR simultaneously for periods covering several years and being served several LOAs in a span of a few months can be very taxing to taxpayers. Certainly, it does not contribute to ease of doing business. This is especially so since assessments are presumed correct and thus taxpayers will end up defending themselves against assessments that, many times, are based on presumptions and not solid facts.
In addition to formulating and implementing a sound and transparent audit program, BIR examiners should also conduct audit procedures that are based on acceptable auditing standards. For instance, they cannot just make sweeping assumptions that all credits to a revenue account are income recorded. They should go into the essence and reasons for various entries, which sometimes include reversals due to regular system adjustments. Also, the common practice of just comparing audited financial statements and tax returns and then concluding alleged deficiencies, should be revisited.
In other words, the other call is for the BIR to revisit and review its audit manual and procedures.
BIR data shows that collections from assessments, as compared to those from voluntary compliance, is low. The BIR annual report for 2024 shows that voluntary payments were the primary source of 2024 revenues at P2.772 trillion or 97.19 percent of total revenues. Preliminary or final assessments and delinquent accounts took up the remaining P71 billion (2.5 percent) and P9 billion (0.31 percent), respectively.
The BIR should exert more effort on improving voluntary compliance and in going after the real tax evaders or high-risk taxpayers. It should take care of compliant taxpayers and grant them reprieve from repeated year-on-year audits. All of these can be achieved in the formulation of a good audit program, and by making selection criteria risk-based and transparent, as well as by adopting procedures that are acceptable and sound. This will make BIR audits more credible and not just be viewed as a tool to harass taxpayers or a vehicle for corruption.
Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer and has been ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal and is the Chair of the Tax Committee of the Management Association of the Philippines. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.
The article was published at the More to Follow Column at The Manila Times on December 18, 2025. Please see this link.