Marcus J Valdez

Five things to remember when being assessed for deficiency taxes

You start your day with a cup of freshly brewed caramel macchiato, sourced directly from a local coffee shop called “Starbs”. As you sip your coffee, you check your email inbox for unread messages. Business is doing great. You’ve sold a lot of clothes from the recent live selling session you did in TikTok. However, one particular email from the Bureau of Internal Revenue (BIR) catches your eye with the subject line “Letter of Authority”. Suddenly, all your joy and satisfaction come crashing down.

Receiving a Letter of Authority from the Bureau of Internal Revenue means that your business is being assessed for deficiency taxes. It can feel intimidating, stressful, and taxing (pun intended), especially for new business owners, which is why here are five tips to remember the next time you receive an assessment for deficiency taxes.

Keep Calm

Suddenly discovering that you owe the government thousands or even millions (sometimes even billions) of pesos can be a cause of panic and several episodes of internal screaming, but we advise that you keep calm. Spend five minutes flipping tables at the office, but after that, regain your composure and assess (pun intended) the situation. Several studies have shown that panicking can lead to poorer performance. Poor performance is not what we want right now. Dealing with a deficiency assessment requires composure so that you can properly respond to the assessment and defend all of the declarations you have made. Ignore that nine-figure amount staring at you from the assessment notice and focus on the areas where you are being examined on. By identifying these matters early on, you can have a rough idea of how to respond to the same. As Spongebob Squarepants eloquently said, panic is the enemy. You are strong, and through your strength, you shall overcome.


Preparation is key

This is such a cliché advise but is surprisingly helpful in deficiency assessments. A Letter of Authority would usually be authorizing certain people to examine documents, books and records of your business or company within a specific period. It might seem easy, but for some, pulling out records from two or three years ago can involve a lot of time and manpower. This is the reason why storing business records in a safe place comes in handy. We advise having these documents filed and organized properly so that there won’t be too much hassle on your part when pulling your records, especially considering that you are only given a certain amount of time to produce such documents. There’s also the possibility of the BIR visiting the premises to inspect your documents books and records. In these cases, setting aside an area or a room in the office where they can examine the documents can help in expediting the process, and would be less intrusive in the workplace. Observing these little things beforehand can make going through a BIR assessment more bearable.

Notice your notices

After initially submitting books, documents, and records to the BIR for examination, the procedure doesn’t stop there. Most likely, several notices will be sent your way asking you to explain some things, notifying you of the deficiency in light of the documents you have sent, and many more. Notices come in different forms such as Letter of Authority, Preliminary Assessment Notice, and Final Assessment Notice. These are things that should not be ignored. It’s best to always respond so that you’ll have better chances of the assessments being canceled right away, especially if the BIR realizes that they made a mistake after your response to their notice. Not responding to notices might also result to the assessment becoming final and a final notice being sent to you. It’s good practice to reduce or lessen the number of areas where you have to defend yourself from the BIR early on so that if the time comes that you have to go to court, you’ll have better chances of having the assessment against you invalidated.

Be Mindful of your Deadlines

All of the notices that the BIR sends your way would almost always have a due date for a response. This can get very tedious if you don’t keep track of the deadlines, especially if you receive multiple notices in a day. It’s equally important to indicate the date that you received the notices, since the period for replying or giving a response to a notice is almost always counted from the date you received the same. After an informal conference by the BIR where they give the taxpayers an opportunity to present evidence, they may issue what is called a Preliminary Assessment Notice (PAN). To refute the same, a response must be filed by the taxpayer within a period of 15 days. Otherwise, the assessment becomes final, and a Final Assessment Notice / Formal Letter of Demand will be issued by the BIR. The taxpayer may respond to the same by filing an administrative protest against the BIR within 30 days from the receipt of the FAN/FLD. Failing to do so will give the BIR the right to finally collect taxes from you. Deadlines are important so that the assessments don’t become final. Otherwise, the taxpayer would lose the right to question the assessment and would have to settle the amount owed to the BIR. Of course, we don’t want incorrectly imputed deficiency tax assessments to get in the way of our budding TikTok live-selling gig, right?

Consult a lawyer

Sometimes, assessments can be too difficult and technical that business owners and their accountants might find it hard to handle. In these cases, it’s better to enlist the help of a lawyer to assist in handling the deficiency assessments. Lawyer can help draft replies to the notices as well as give sound advice as to what to do next. Even if the case reaches the Court of Tax Appeals, tax lawyers are adequately equipped to defend their clients from erroneous assessments issued by the BIR. The FBRT Law Firm lawyers have wide experience in dealing with the BIR and its deficiency tax assessments and have represented its clients not just before the BIR but also before the Court of Tax Appeals. Let our professional lawyers handle your Deficiency Tax Assessments and other BIR matters by booking an appointment with us, through our website.