An income tax assessment is the BIR’s formal determination that you owe additional income tax for a specific year. It becomes enforceable only after the BIR issues a valid Final Assessment Notice (FAN) and Formal Letter of Demand (FLD) and serves them properly.

Important notes and examples:

• Assessments often arise from underreported revenue, unreconciled books, or disallowed expenses.
• A FAN must contain both facts and legal basis; otherwise, it can be disputed.
• Assessments issued without a valid LOA or without proper service can be considered void.

Action: Gather the assessment documents (NIC, PAN, FAN, FLD) and place them in order by date so you can see the timeline clearly.

The BIR’s authority to examine records and issue assessments comes from specific statutory provisions and implementing regulations.

Key legal sources and notes:

• NIRC Sec. 6(A): Allows the BIR to assess taxes and examine books.
• NIRC Sec. 203: General three-year period within which the BIR must issue an assessment.
• NIRC Sec. 222(a): Ten-year assessment period if the return is false or fraudulent with intent to evade tax.
• NIRC Sec. 228 & RR 12-99: Require the FAN to state the facts and law supporting the assessment.
• RR 18-2013: Implements the rules for filing protests and submitting documents.
• LOA rules (RMO 6-2023): Define how audits must start and how examiners must be authorized.

Action: Check whether your FAN cites specific facts and the exact law or regulation allegedly violated.

For legal basis review, email admin@lawyerphilippines.org.

If unanswered, a FAN becomes final, executory, and demandable, giving the BIR authority to enforce collection.

Consequences and risks:

• Bank garnishment under Section 205.
• Levy on property and tax lien enforcement.
• 25% surcharge (late filing/payment) or 50% surcharge (fraud allegations).
• 12% interest per annum under Section 249.
• Possible criminal referral in cases where fraud indicators exist.

Action: Check the date of receipt of your FAN and count 30 days; do not let the deadline lapse.

The process follows a defined sequence of notices and deadlines that both the BIR and the taxpayer must follow.

Process reminders:

• LOA: Must be valid and properly issued to start the audit.
• Notice of Informal Conference (NIC): Optional but increasingly used to raise initial findings.
• Pre-Assessment Notice (PAN): Gives the taxpayer a chance to respond before the FAN.
• FAN/FLD: The enforceable demand for payment.
• Protest period:
  • 30 days to file a protest (reconsideration or reinvestigation).
  • 60 days to submit supporting documents after the protest.

Action: Create a simple timeline of all notices received so you can verify whether the BIR followed due process.

Strong evidence is essential in resolving disputed findings and supporting a protest.

Common evidence issues and how to handle them:

• Missing receipts or invoices: Reconstruct using bank statements, contracts, delivery receipts.
• Disallowed expenses: Gather proof that the expense is ordinary, necessary, and connected to business.
• Underdeclared revenue: Prepare reconciliation schedules between books, AFS, and tax returns.
• Withholding tax exposures: Match remittances with certificates and submissions (1601-EQ, 1604-F, etc.).
• Documentation gaps: Identify missing documents early so they can be retrieved or reconstructed.

Action: Prepare a reconciliation between your AFS, books, and ITR to identify discrepancies before submitting documents.

Court decisions clarify how assessments must be issued and what defects can invalidate them.

Key cases and lessons:

• CIR v. Meralco (G.R. No. 181459, June 9, 2014):
  The FAN must specify facts and law. Assessments lacking detail may be void.
• Metro Star Superama v. CIR (G.R. No. 185371, Dec. 8, 2010):
  Proper service of notices is essential; incorrect service violates due process.
• Medicard v. CIR (G.R. No. 222743, Apr. 5, 2017):
  A valid LOA is necessary; assessments from audits without valid LOAs are void.
• Philippine Journalists v. CIR (G.R. No. 162852, Dec. 16, 2004):
  Invalid or defective waivers can make assessments time-barred.

Action: Compare your notices with the rulings above to check if the same defects appear in your case.

Income tax assessments require careful review of notices, deadlines, evidence, and procedural requirements. Acting early allows you to identify defects, prepare documents, and reduce or cancel findings.

For an in-depth assessment review, email admin@lawyerphilippines.org.

Q1: Can the BIR assess me even if I filed my return correctly?

Yes. The BIR may issue an assessment if it finds discrepancies, mismatches, or documentation gaps. Even if the figures were correct, the BIR may ask for proof.
Action: Gather your books, receipts, and bank statements and prepare a reconciliation schedule.

Q2: What if I never received the PAN or FAN?

If notices were not properly served, the assessment may be void due to lack of due process. Proper service includes personal service, registered mail, or other legally recognized modes.
Action: Check the envelope, registry receipts, or records showing how and when notices were delivered.

Q3: Can I still challenge an assessment after 30 days?

Once the 30-day protest period lapses, the assessment becomes final and cannot be appealed administratively. Some taxpayers pursue judicial remedies, but these are complex and rarely succeed if deadlines were missed.
Action: Immediately verify the receipt date of your FAN and count 30 days forward.

Q4: What if the BIR disallowed my expenses?

You may challenge disallowances by proving the expenses were ordinary, necessary, and substantiated. Supporting evidence such as contracts, invoices, delivery receipts, or bank records can help.
Action: Organize supporting documents by expense category and prepare a narrative explaining business purpose.

Q5: How do I know if the assessment is time-barred?

Most assessments must be issued within three years from filing the return. Longer periods apply only in cases of fraud or false returns with intent to evade tax.
Action: Check the filing date of your return and the date the LOA or PAN was issued.

Q6: How do I avoid future income tax assessments?

Regular reconciliation of books, filing accurate and complete returns, and maintaining complete documentary support significantly reduce exposure.
Action: Perform quarterly internal audits to identify mismatches early.