BIR’s best evidence obtainable

By: Atty. Xela Leona D. Laqui on February 26, 2026

THE authority of the Bureau of Internal Revenue (BIR) to assess taxes based on the “best evidence obtainable” is anchored in Section 6(B) of the National Internal Revenue Code of 1997, as amended (Tax Code). Section 6(B) provides that when a report required by law as a basis for the assessment of any national internal revenue tax will not be forthcoming within the time fixed by laws or rules and regulations, or when there is reason to believe that any such report is false, incomplete or erroneous, the commissioner will assess the proper tax on the best evidence obtainable. This provision allows the BIR to determine tax liability even if the taxpayer fails to cooperate or submit proper records. However, this power is not unlimited. The BIR may exercise the rule only when its use is clearly justified by the facts and must always comply with the law and due process.

Revenue Memorandum Circular (RMC 23-00) underscores that an assessment based on the best evidence obtainable is justified only when any of the grounds provided by law is clearly established, namely: the report or records requested from the taxpayer are not forthcoming, such as when the records are lost, or the taxpayer refuses to submit such records; or the reports submitted are false, incomplete or erroneous. The circular likewise provides that, where a taxpayer refuses or fails to submit records and a subpoena duces tecum is issued, an assessment will only be issued after a criminal case has been instituted for failure to obey summons. This procedural safeguard demonstrates that the rule is not meant to be invoked lightly or prematurely.

The best evidence obtainable does not mean any evidence that is convenient to the BIR. It refers to the best evidence reasonably available under the circumstances after the BIR has exhausted ordinary means of examination. The absence of records or the presence of incomplete reports does not automatically validate the BIR’s making any estimate on the proper taxes to be assessed. The assessment must still be based on actual facts and reasonable inferences drawn from verified data. Estimates, while allowed, must never be arbitrary or capricious.

Assessments must always be grounded on facts and law. They should not be based on mere presumptions, even if such presumptions appear reasonable or logical. To pass judicial scrutiny, an assessment must be supported by substantial evidence. The presumption of correctness given to tax assessments is only prima facie. It cannot be built upon another presumption. In short, assumptions layered upon assumptions, without clear factual support, cannot sustain a valid deficiency assessment.

In one case, the Court of Tax Appeals (CTA) en banc ruled that the BIR cannot anchor the validity of an assessment on account of the best evidence obtainable rule where the circumstances for its application are not present. RMC 23-00 provides only two instances when the rule may be invoked: when records are not forthcoming, or when submitted reports are false, incomplete or erroneous. Here, the taxpayer had submitted tax returns and accounting books and records. The CTA found that the BIR failed to verify the truthfulness and veracity of the data obtained from computerized matching. Consequently, the assessment was void for lack of factual and legal basis except for the portion supported by verified data. The ruling serves as a reminder that the best evidence obtainable rule cannot cure deficiencies in factual investigation.

The BIR may, in appropriate cases, use comparative data from other taxpayers engaged in the same line of business, industry ratios, net worth analysis or records from other government agencies. However, these methods must be applied cautiously. Comparative ratios may vary widely depending on location, scale of operations and business model. Net worth analysis requires careful tracing of assets and liabilities, and demands that unexplained increases be reasonably attributable to taxable income. Reliance on third-party or government data must be accompanied by validation and reconciliation with the taxpayer’s actual circumstances.

The danger in overreliance on the best evidence obtainable lies in the temptation to equate noncooperation or imperfect documentation with automatic deficiency. The law authorizes estimation only when the statutory conditions are clearly established. Even then, the estimate must approximate reality as closely as possible. The objective is not to penalize record-keeping lapses per se, but to determine the correct tax liability. The BIR’s mandate is to assess the “proper tax,” not a speculative or inflated amount.

Moreover, due process considerations remain paramount. The taxpayer must be informed of the factual and legal bases of the assessment and given the opportunity to rebut the evidence relied upon. If the taxpayer is able to present sufficient and competent evidence to dispute the estimate, such evidence must be fairly evaluated. Where secondary evidence is offered because primary records are unavailable through no bad faith of the taxpayer, fairness dictates that it be considered.

Ultimately, the best evidence obtainable is a practical tool meant to protect government revenue when direct records are unavailable. However, it is not a substitute for proper investigation and not a license for guesswork. The presumption of correctness attached to tax assessments is not absolute. It can be overturned when there is no substantial factual and legal basis. For this reason, the BIR must exercise caution in applying this rule. Every assessment must rest on law and verified facts, not on assumptions. The credibility of tax administration depends not only on effective collection, but also on fairness, accuracy and respect for legal standards.

Xela Leona D. Laqui is an Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). 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 February 26, 2026. Please see this link.

https://www.manilatimes.net/2026/02/26/business/top-business/birs-best-evidence-obtainable/2284950