Received a BIR Notice of Discrepancy (NOD)? What You Should Do Next in the Philippines

Executive Summary

Receiving a Notice of Discrepancy (NOD) from the Bureau of Internal Revenue (BIR) can be worrying, especially when the notice identifies possible differences in your company's tax returns, financial statements, or accounting records.

However, receiving an NOD does not automatically mean your business has committed a tax violation or must immediately pay additional taxes.

A Notice of Discrepancy is generally issued during a BIR tax examination to inform the taxpayer of identified differences that require explanation or clarification.

It gives the taxpayer an opportunity to discuss the findings, review the BIR's computations, and present supporting documents before the examination potentially proceeds to a formal tax assessment.

The most important step is to respond promptly, understand the discrepancies, and prepare explanations supported by reliable records.

This guide explains what a BIR Notice of Discrepancy means, how businesses should respond, the possible consequences of unresolved findings, and the steps that may follow.

What Is a BIR Notice of Discrepancy?

A BIR Notice of Discrepancy (NOD) is a document used during a tax examination to inform a taxpayer of discrepancies identified by the examining revenue officers.

These discrepancies may involve differences between tax returns, financial statements, books of accounts, invoices, withholding tax records, or other relevant documents.

For example, the BIR may identify a difference between the sales reported in a company's VAT returns and the revenue reflected in its audited financial statements.

That difference does not necessarily establish underreported taxable sales. It may result from timing differences, accounting adjustments, or transactions subject to different tax treatments.

The purpose of the discrepancy discussion is to allow the taxpayer and the BIR to examine the issues and determine whether the findings are supported by the records and applicable tax laws.

An NOD is not the same as a Preliminary Assessment Notice (PAN) or Final Assessment Notice (FAN).

Why Does the BIR Issue a Notice of Discrepancy?

During a tax audit, revenue officers compare information from different records to determine whether the taxpayer has properly declared and paid its taxes.

Common areas of examination include reported sales, deductible expenses, withholding taxes, VAT declarations, and accounting reconciliations.

Discrepancies may arise because the records contain inconsistent amounts, transactions were reported in different periods, or the supporting documents do not clearly explain the tax treatment.

The issuance of an NOD allows these matters to be discussed before the BIR proceeds further with the assessment process.

Step-by-Step Guide: What to Do After Receiving a BIR NOD

Step 1: Check the Notice and Record the Date of Receipt

Upon receiving an NOD, carefully review the document.

Confirm the taxpayer's registered name, the taxable period under examination, the revenue officers involved, and the discrepancies identified.

Record the actual date of receipt and check the applicable deadline or conference schedule.

Under the BIR's established NOD procedure in Revenue Memorandum Order No. 6-2023, the taxpayer is generally given an opportunity to discuss the discrepancies within a prescribed period, traditionally 30 days from receipt of the NOD.

Because the BIR introduced revised audit procedures in 2026, taxpayers should verify the currently applicable period and any specific instructions in their notice rather than assume that every NOD follows the same timetable.

Step 2: Identify and Understand Each Discrepancy

Do not immediately accept or reject the BIR's findings without examining the underlying computations.

Review each discrepancy and determine how the BIR arrived at the amount.

For example, if the BIR identifies allegedly undeclared sales, compare the amounts against your VAT returns, income tax returns, financial statements, sales records, and general ledger.

The objective is to determine whether the difference represents an actual reporting error or can be explained through legitimate accounting and tax adjustments.

Step 3: Prepare Supporting Documents and Reconciliations

A clear explanation is more effective when supported by relevant records.

Depending on the issues raised, businesses may need to prepare invoices, contracts, tax returns, accounting schedules, withholding tax certificates, financial statements, and transaction-level reconciliations.

For differences involving sales, a reconciliation should explain how the amounts reported in different documents relate to one another.

For expense-related findings, the company should review the supporting invoices, business purpose, applicable tax rules, and relevant withholding tax treatment.

The goal is to provide an accurate, organized explanation not simply to dispute the BIR's figures without evidence.

Step 4: Participate in the Discrepancy Discussion

The NOD process generally provides an opportunity for the taxpayer to discuss the findings with the examining revenue officers.

During the discussion, the company may clarify the nature of the transactions, explain accounting differences, and present relevant supporting documents.

Where the findings involve complex transactions or substantial amounts, it may be helpful to involve the company's accountant, tax adviser, or legal counsel.

Businesses should keep written records of the issues discussed, explanations submitted, and documents provided.

Step 5: Submit a Clear Written Explanation When Appropriate

A written response can help organize the company's position and create a record of the explanations provided.

The response should identify each disputed finding, explain the relevant facts, refer to supporting documents, and state why the taxpayer believes the BIR's computation requires adjustment or reconsideration.

Avoid unsupported statements or inconsistent explanations.

Where the taxpayer identifies an actual reporting error, the company should evaluate the legally appropriate corrective action with professional guidance.

Step 6: Understand What Happens After the NOD

If the discrepancies are satisfactorily explained, the findings may be adjusted or resolved, subject to the BIR's review.

If material discrepancies remain unresolved, the examination may proceed to the next applicable stage of the tax assessment process.

This may include the issuance of a Preliminary Assessment Notice (PAN), where required by law and the applicable regulations.

A PAN generally informs the taxpayer of proposed deficiency taxes and provides an opportunity to respond before the issuance of a formal assessment.

If the BIR subsequently issues a Final Assessment Notice (FAN), different protest requirements and deadlines apply.

Responding to an NOD is part of the audit discussion process. Filing a protest against a formal tax assessment is a separate legal remedy.

Risks and Penalties: What Happens if You Ignore a BIR NOD?

Ignoring a Notice of Discrepancy can cause a business to miss an important opportunity to explain or correct the BIR's initial findings.

If the discrepancies remain unresolved, the BIR may proceed with the assessment process, subject to the applicable rules.

Where the examination establishes unpaid taxes, the resulting assessment may include deficiency taxes, applicable surcharges, interest, and other legally authorized penalties.

However, an NOD does not automatically establish a tax liability or impose a penalty.

The BIR must observe the required assessment procedures and taxpayer due process.

Under RMO No. 1-2026, an NOD should identify the discrepancies sufficiently to allow the taxpayer to understand and contest the findings. Subsequent assessment notices should address the issues that remain unresolved after the discrepancy discussion.

Practical Examples

Example 1: Differences Between VAT Returns and Financial Statements

ABC Corporation receives an NOD identifying a difference between the sales reported in its VAT returns and the revenue reflected in its financial statements.

After reviewing its records, the company discovers that part of the difference relates to timing and accounting adjustments.

ABC Corporation prepares a reconciliation with supporting documents to explain the difference during the discrepancy discussion.

Example 2: Questioned Business Expenses

XYZ Corporation receives an NOD questioning certain expenses claimed in its income tax return.

The company reviews the relevant invoices, contracts, payment records, and applicable deduction requirements.

It then prepares an explanation identifying which expenses are supported and whether any adjustments are necessary.

Example 3: Withholding Tax Discrepancies

DEF Corporation receives an NOD concerning possible underwith holding of taxes on payments to suppliers.

The accounting team examines the transactions, applicable withholding tax rates, filed returns, and withholding tax certificates.

The company then determines whether the findings reflect an actual deficiency or an error in the BIR's reconciliation.

Frequently Asked Questions

1. Does receiving a BIR NOD mean my business owes additional taxes?

No.

An NOD communicates discrepancies identified during a tax examination. It is not yet a formal deficiency tax assessment.

2. How long do I have to respond to a BIR Notice of Discrepancy?

The applicable response or discussion period depends on the governing BIR procedures. Businesses should promptly check the notice, the relevant revenue issuance, and any scheduled discussion.

Do not confuse the NOD process with the separate 15-day PAN response period or 30-day FAN protest period.

3. Can I disagree with the BIR's findings?

Yes.

The discrepancy discussion is intended to give taxpayers an opportunity to explain differences, present supporting documents, and contest findings before a formal assessment is issued.

4. Can the BIR issue a PAN after an NOD?

Yes.

If discrepancies remain unresolved, the BIR may proceed with a PAN, subject to the applicable rules and exceptions.

5. Should I pay the amount indicated in the NOD immediately?

Not necessarily.

An NOD is not itself a formal demand for payment.

The taxpayer should first review the findings and determine whether the proposed deficiency is correct. If the taxpayer agrees with the findings, applicable BIR procedures may allow settlement during the discrepancy stage.

6. Should I hire a CPA or lawyer after receiving an NOD?

Professional assistance can be useful when the discrepancies involve significant amounts, complex transactions, incomplete records, or possible legal issues.

A CPA can assist with accounting reconciliations, while legal counsel can evaluate the tax issues, procedural requirements, and available remedies.

Key Takeaway: Respond to the NOD Before Findings Escalate

Receiving a BIR Notice of Discrepancy should prompt an immediate review of the company's accounting records and tax declarations.

The most effective response begins with understanding the findings, preparing accurate reconciliations, gathering supporting documents, and participating in the required discrepancy discussion.

An NOD is an opportunity to clarify audit findings before they potentially develop into a formal tax assessment.

Addressing the issues early may help resolve misunderstandings, correct unsupported computations, and reduce unnecessary tax disputes.

Call-to-Action: Received a BIR Notice of Discrepancy?

Aureada CPA Law Firm provides legal, accounting, and tax advisory assistance to businesses undergoing BIR examinations and tax assessments.