Preliminary Assessment Notice: What Should a Taxpayer Do?

Executive Summary

Receiving a Preliminary Assessment Notice (PAN) from the Bureau of Internal Revenue (BIR) does not automatically mean that the tax assessment is already final.

A PAN is generally the BIR's formal notice of its proposed deficiency tax assessment after reviewing the taxpayer's records. It should identify the tax deficiencies being proposed and state the facts and legal basis for the findings.

The important part is timing.

A taxpayer generally has 15 days from receipt of the PAN to submit a response explaining why the proposed assessment should be cancelled, reduced, or corrected. Under existing BIR rules, a response to the PAN is not the same as the formal administrative protest against a Final Assessment Notice, but responding at this stage can be strategically important because it gives the taxpayer an opportunity to address the findings before they progress to a final assessment.

If you receive a PAN, the best approach is not to panic or immediately accept the computation. Review the assessment carefully, verify the BIR's factual assumptions, reconcile your records, and determine whether the findings are legally and mathematically correct.

What Is a Preliminary Assessment Notice?

A Preliminary Assessment Notice, commonly called a PAN, is a notice informing a taxpayer that the BIR proposes to assess additional taxes.

It may arise after a tax audit involving income tax, VAT, withholding taxes, percentage tax, or other internal revenue taxes.

Under Revenue Regulations No. 18-2013, the PAN should show in detail the facts and the law, rules, regulations, or jurisprudence on which the proposed assessment is based.

This requirement is important because taxpayers must be given a meaningful opportunity to understand why the BIR believes additional taxes are due.

A PAN should therefore be treated as more than a demand for payment. It is also an opportunity to test the factual and legal foundation of the proposed assessment.

Step-by-Step: What Should You Do After Receiving a PAN?

Step 1: Record the Exact Date You Received It

The first thing to document is the date of actual receipt.

The taxpayer generally has 15 days from receipt of the PAN to submit a response.

Keep the envelope, receiving copy, email transmission, acknowledgment, or other proof showing when the PAN was received.

This may appear administrative, but tax disputes frequently turn on deadlines. Knowing the correct date of receipt can become critical later in the assessment process.

Step 2: Do Not Focus Only on the Total Amount

The amount at the bottom of the PAN is important, but it should not be the starting point of the review.

Break down the assessment by tax type, taxable period, factual finding, adjustment, and penalty.

For example, an income tax deficiency may arise from alleged undeclared sales, disallowed expenses, unsupported purchases, withholding-tax issues, or differences between tax returns and third-party information.

Each finding may require a different response.

A taxpayer may agree with one adjustment and strongly dispute another. The assessment should therefore be analyzed issue by issue rather than treated as one lump-sum liability.

Step 3: Compare the Findings With Your Actual Records

The next step is reconciliation.

Compare the BIR's findings against the company's:

books of accounts;

tax returns;

invoices and supporting documents;

financial statements;

withholding tax records;

contracts;

bank and accounting schedules; and

other documents relevant to the particular finding.

A discrepancy is not always proof of undeclared income or an invalid deduction.

Differences may arise from timing, accounting classifications, withholding treatment, cancelled transactions, credit notes, intercompany entries, or other legitimate explanations.

The goal is to determine why the BIR arrived at the adjustment and whether the records support or contradict it.

Step 4: Review the Legal Basis of the Assessment

A tax assessment should not rest solely on a computation.

Ask whether the PAN clearly explains:

What transaction is being questioned? Why does the BIR consider it taxable or non-deductible? What provision of tax law supports the finding?

Revenue Regulations No. 18-2013 requires the proposed assessment to state its factual and legal basis in detail.

A strong response therefore addresses both dimensions.

If the BIR's factual assumption is incorrect, establish the correct facts through records and reconciliations.

If the facts are substantially correct but the tax treatment is disputed, explain the applicable Tax Code provision, revenue issuance, or jurisprudence supporting the taxpayer's position.

Step 5: Prepare a Focused PAN Response

A PAN response should not simply state that the taxpayer “disagrees.”

It should explain why.

The response should ordinarily identify each disputed assessment, state the relevant facts, explain the applicable legal position, and attach supporting documents where appropriate.

For a complex corporate audit, it may be useful to structure the response by tax type and issue so the reviewing BIR officers can clearly follow the taxpayer's position.

Avoid submitting large volumes of documents without explaining their relevance. A well-organized reconciliation supported by the right documents can be more effective than an unstructured submission containing hundreds of pages.

Step 6: Submit Within the 15-Day Period

Under the BIR's assessment rules, the taxpayer generally has 15 days from receipt of the PAN to respond.

Keep complete proof of submission, including the receiving copy and all attachments.

This becomes particularly important if there is later disagreement over whether the response was filed on time or whether particular supporting documents formed part of the taxpayer's submission.

Step 7: Prepare for the Possible FLD/FAN

Responding to the PAN does not guarantee that the proposed assessment will disappear.

The BIR may accept some explanations, reduce certain findings, or maintain the proposed deficiencies.

If the BIR proceeds, the taxpayer may receive a Formal Letter of Demand and Final Assessment Notice (FLD/FAN).

That document triggers a different and more critical remedy.

A taxpayer disputing an FLD/FAN generally has 30 days from receipt to file an administrative protest, either through a request for reconsideration or a request for reinvestigation.

This distinction is essential:

PAN response = opportunity to challenge the proposed assessment.

FLD/FAN protest = formal administrative remedy against the final assessment.

Do not confuse the two deadlines.

What Happens If You Do Not Respond to the PAN?

Under Revenue Regulations No. 18-2013, failure to respond within the 15-day period allows the BIR to consider the taxpayer in default at the PAN stage and proceed with the issuance of an FLD/FAN.

However, missing the PAN response period does not by itself mean that the assessment has already become final and unappealable.

The taxpayer must still carefully monitor whether an FLD/FAN is issued.

Once an FLD/FAN is received, the 30-day protest deadline becomes crucial. Failure to file a valid protest within that period can cause the assessment to become final, executory, and demandable.

This is why ignoring BIR correspondence is particularly dangerous.

Are There Cases Where the BIR Does Not Need to Issue a PAN?

Yes.

Section 228 of the Tax Code, as implemented by Revenue Regulations No. 18-2013, recognizes specific situations where a PAN is not required and the BIR may proceed directly to an FLD/FAN.

These include certain situations involving mathematical errors on the face of the return, discrepancies between taxes withheld and taxes actually remitted, specified tax-credit situations, unpaid excise taxes, and transfers of certain tax-exempt articles to non-exempt persons.

Outside the legally recognized exceptions, compliance with assessment due process remains important.

Risks and Possible Penalties

A PAN may include proposed deficiency taxes together with applicable interest, surcharge, and other additions to tax, depending on the nature of the alleged violation.

But the more immediate risk is procedural.

A taxpayer who fails to review the PAN carefully may lose an early opportunity to correct factual assumptions or provide documents that could reduce the proposed assessment.

The greater danger comes later if an FLD/FAN is issued and the taxpayer misses the formal protest deadline.

Businesses should therefore maintain a centralized system for receiving and monitoring BIR notices. A tax notice left unattended on someone's desk can eventually become a significant financial and legal problem.

Practical Example

Assume ABC Corporation receives a PAN proposing PHP 5 million in deficiency income tax and VAT.

A large portion of the assessment is based on an alleged difference between sales appearing in third-party information and sales reported in ABC's tax returns.

Instead of immediately accepting the PHP 5 million figure, ABC reviews the transactions.

It discovers that part of the supposed difference relates to transactions already reported in another period, while another portion consists of cancelled transactions supported by credit documents.

ABC prepares a reconciliation showing how each amount was treated, attaches the relevant records, and explains the applicable tax treatment in its PAN response.

The BIR may accept all, some, or none of the explanation. But ABC has now placed its factual and legal position on record before the assessment reaches the FLD/FAN stage.

This illustrates why the PAN period should be used strategically rather than treated as a mere formality.

Frequently Asked Questions

Is a PAN already a final BIR assessment?

No. A PAN generally communicates a proposed deficiency assessment. If the matter remains unresolved, the BIR may subsequently issue an FLD/FAN.

How many days do I have to respond to a PAN?

The taxpayer generally has 15 days from receipt of the PAN to submit a response.

Is responding to a PAN mandatory?

BIR guidance under RMO No. 26-2016 describes a protest against the PAN as optional rather than mandatory. Nevertheless, a timely and well-supported response can be strategically valuable because it allows the taxpayer to challenge the proposed findings before the final assessment stage.

Can I still challenge the assessment if I failed to respond to the PAN?

Potentially, yes. If an FLD/FAN is subsequently issued, the taxpayer generally has 30 days from receipt to file the proper administrative protest.

Missing that later deadline is considerably more serious because the assessment may become final, executory, and demandable.

Should I immediately pay the amount stated in the PAN?

Not automatically.

First determine whether the proposed assessment is correct. Review the factual assumptions, computations, documents, and legal basis before deciding whether to accept, partially settle, or contest the findings.

What is the difference between reconsideration and reinvestigation?

These remedies generally arise at the FLD/FAN protest stage.

A request for reconsideration asks the BIR to reevaluate the assessment based on the existing record, while a request for reinvestigation involves newly discovered or additional evidence or documents.

Received a Preliminary Assessment Notice? Review It Before the Deadline Runs

A PAN should not be ignored, but it should not be treated as an automatic admission that the BIR's computation is correct.

The most effective response begins with a disciplined review of the assessment: identify the issues, reconcile the accounting and tax records, test the BIR's assumptions, evaluate the legal basis, and prepare a clear response supported by the right evidence.

This is particularly important for corporations facing assessments involving several tax types or substantial amounts, where one incorrect assumption can affect multiple computations.

Aureada CPA Law Firm assists taxpayers in reviewing BIR audit findings, reconciling tax and accounting records, evaluating the legal basis of proposed assessments, preparing PAN responses, and handling administrative protests involving FLD/FAN assessments.

If your company has received a Preliminary Assessment Notice, Final Assessment Notice, Formal Letter of Demand, or another BIR audit notice, obtaining a focused legal and tax review before the applicable deadline can help preserve available remedies and place the taxpayer in a stronger position for the next stage of the proceedings.