What Happens After a BIR Audit Begins? A Step-by-Step Guide

Executive Summary

Receiving a BIR audit notice can be stressful, especially if you are unsure what happens next. But a BIR tax audit usually follows a series of stages from the examination of records to discussions of possible tax discrepancies and, in some cases, the issuance of a formal tax assessment.

For a full examination of books and accounting records, the BIR now uses an electronic Letter of Authority or eLA. Under the BIR’s 2026 audit reforms, a Mission Order or Tax Verification Notice has a more limited purpose and should not be confused with authority for a full tax audit.

Understanding each stage can help businesses respond properly, organize documents early, and avoid missing important deadlines.

Step-by-Step: What Happens During a BIR Audit?

Step 1: You Receive a Letter of Authority

A full BIR audit generally begins when authorized Revenue Officers are assigned to examine a taxpayer through an electronic Letter of Authority (eLA).

Check the document carefully. It should identify important details such as the taxpayer, taxable period, tax types covered, and Revenue Officers assigned to the case.

Under the BIR's 2026 rules, an eLA for a full audit is specifically labeled “Full

Examination of Books of Accounts and Other Accounting Records.”

This is important because the audit should remain within the authority and taxable period stated in the eLA.

Step 2: The BIR Requests Accounting and Tax Records

The Revenue Officer will normally request documents needed to examine your tax returns and accounting records.

These may include books of accounts, invoices, official records, tax returns, schedules, contracts, bank-related documents, withholding tax records, and other supporting documents relevant to the audit.

Businesses should avoid submitting incomplete, inconsistent, or poorly organized records. Before providing documents, reconcile them with the tax returns and financial records already filed with the BIR.

The 2026 audit reforms also introduced standardized document checklists. Additional documents should generally be directly relevant to identified audit issues, reasonably necessary for evaluation, and within the authorized scope of the audit.

Step 3: The Revenue Officer Examines the Records

The BIR compares the information in your books and tax returns with other available information.

Common areas reviewed may include reported sales, deductible expenses, withholding taxes, VAT, income tax, and transactions appearing in third-party information available to the BIR.

Not every audit automatically results in a large tax assessment. Some issues can be explained when complete documents and proper reconciliations are presented early.

This is why businesses should understand each discrepancy instead of simply accepting computations without reviewing their factual and legal basis.

Step 4: You May Receive a Notice of Discrepancy

If the audit identifies possible deficiencies or disallowances, the taxpayer may receive a Notice of Discrepancy (NOD).

The findings should then be discussed with the taxpayer or the taxpayer's authorized representative during the Discussion of Discrepancy.

This stage gives the taxpayer an opportunity to explain differences, provide supporting records, and challenge findings before a formal assessment is issued. If the taxpayer agrees with the findings, the deficiency taxes and applicable additions may be settled. If the issues remain unresolved, the case may proceed to the reviewing office for assessment.

Step 5: The BIR May Issue a Preliminary Assessment Notice

If unresolved deficiencies remain, the BIR may issue a Preliminary Assessment Notice (PAN).

The PAN should explain the proposed deficiency tax and the facts and legal basis supporting the assessment.

A taxpayer who disagrees with the PAN generally has 15 days from receipt to respond.

If the taxpayer fails to respond or pay within the prescribed period, the BIR may proceed with a Formal Letter of Demand and Final Assessment Notice.

The PAN stage should be taken seriously. A detailed response supported by accounting records and applicable tax rules may help resolve or reduce disputed findings before they become final assessments.

Step 6: You May Receive an FLD/FAN

If the BIR maintains its findings, it may issue a Formal Letter of Demand and Final Assessment Notice (FLD/FAN).

This is a more serious stage because the taxpayer must act within a strict deadline.

A taxpayer who disagrees with the assessment generally has 30 days from receipt of the FLD/FAN to file a valid administrative protest. Failure to protest within that period can cause the assessment to become final, executory, and demandable.

A protest may take the form of a request for reconsideration, which relies on records already submitted, or a request for reinvestigation, which involves newly discovered or additional evidence.

For a request for reinvestigation, the supporting documents generally must be submitted within 60 days from filing the protest.

Step 7: The BIR Decides the Protest

After reviewing the taxpayer's protest, the BIR may issue a Final Decision on Disputed Assessment (FDDA).

If the taxpayer still disagrees with the decision, further administrative or judicial remedies may be available.

For example, an appeal to the Court of Tax Appeals may be available within the applicable 30-day period. Different rules can also apply when the BIR does not act on a protest within the prescribed 180-day period, so professional advice is particularly important once the case reaches this stage.

Risks and Penalties During a BIR Audit

The biggest risk is not simply being selected for audit. Problems usually become more serious when the taxpayer ignores notices, submits inconsistent records, or misses a legal deadline.

An audit may result in deficiency taxes together with applicable surcharges, interest, and other penalties, depending on the facts of the case.

More importantly, failing to respond to an FLD/FAN within the required 30-day protest period can cause the assessment to become final, executory, and demandable.

Businesses should therefore keep a clear record of when every BIR notice was received.

In tax assessments, the date of receipt can determine the deadline for the next legal remedy.

Practical Example

Suppose ABC Trading Corp. receives an eLA covering its 2025 income tax, VAT, and withholding taxes.

The Revenue Officer requests the company's books, invoices, tax returns, and supporting schedules. During the examination, the BIR notices that sales reported in certain records do not appear to match the amounts declared in the VAT returns.

ABC reviews the issue and discovers that part of the difference resulted from timing and classification differences. It prepares a reconciliation and presents supporting documents during the Discussion of Discrepancy.

The BIR accepts part of the explanation but maintains another adjustment.

ABC later receives a PAN. Instead of ignoring it, the company prepares a written response within the 15-day period.

If an FLD/FAN is eventually issued and ABC still disagrees with the assessment, it must protect its rights by filing the appropriate protest within the required 30-day period.

The example shows why early preparation matters. The sooner a business reconciles its records and understands the BIR's findings, the more options it may have to resolve legitimate discrepancies.

Frequently Asked Questions

Does receiving a Letter of Authority mean I already owe taxes?

No.

An eLA authorizes the BIR to examine the books and accounting records covered by the audit. Whether additional taxes are actually due depends on the findings and the taxpayer's explanations and supporting documents.

Should I immediately pay when the Revenue Officer presents an audit finding?

Not necessarily. First understand how the amount was computed and the factual and legal basis for the finding. Some discrepancies may be explained through reconciliations or additional documents.

How long do I have to answer a PAN?

A taxpayer generally has 15 days from receipt of the PAN to respond.

How long do I have to protest an FLD/FAN?

A valid administrative protest generally must be filed within 30 days from receipt of the FLD/FAN. Missing this deadline can make the assessment final and demandable.

What should I do immediately after receiving a BIR audit notice?

Verify the authority, record the date of receipt, determine the taxable period and taxes covered, organize the requested documents, reconcile your tax filings, and have the case reviewed by a qualified tax professional if significant issues are involved.

Need Help With a BIR Audit?

A BIR audit becomes much easier to manage when the business responds early, keeps complete records, and understands each deadline.

If your company has received an eLA, Notice of Discrepancy, PAN, FLD/FAN, or other BIR assessment notice, consider having the case reviewed before responding or making payment.

Professional assistance can help you review the BIR's findings, reconcile your accounting and tax records, prepare the required responses, and determine the appropriate remedy available to your business.

Need assistance with an ongoing BIR audit or tax assessment? Contact our team for a review of your case and guidance on the next steps.