Few things may be as stressful to a business owner as getting a tax assessment from the Bureau of Internal Revenue (BIR), especially when your business believes the figures just don’t add up. Maybe certain deductions were disallowed, or the BIR found discrepancies in your reported income. Whatever the reason, businesses need to know that not all tax assessments are set in stone. You have the right to question and dispute them, but timing and proper procedure are key.
If you ignore a questionable assessment or miss the deadlines to respond, the tax due becomes final and enforceable, whether it’s accurate or not. That could mean unexpected financial strain, penalties, or worse, collection actions like asset seizure. Knowing how to handle a dispute, and when to bring in a tax lawyer to help, can save your business from major headaches down the road. In this briefer, let’s go through the steps you should take when disputing a tax assessment for your business.
1) Consult a Tax Lawyer as Early as Possible
When your business receives a Letter of Authority (LOA), which is the BIR’s formal notice of an audit, it’s time to pay close attention. This is usually followed by a Preliminary Assessment Notice (PAN), outlining the BIR’s initial findings and giving you a chance to respond. If the audit continues, a Final Assessment Notice (FAN) will be issued, stating the amount the BIR believes you owe, including taxes, penalties, and interest. At this stage, it’s important for you to respond promptly.
That’s why it’s a smart move to consult a tax lawyer early in the process—perhaps as soon as you receive the LOA. While your accountant may handle the numbers, a lawyer is trained to assess whether the BIR followed due process, whether the findings are legally sound, and how best to respond. Acting early gives you time to build a solid defense and not scramble under pressure.
2) Carefully Review the Tax Assessment and Supporting Documents
Before reacting to the BIR’s findings, take time to understand what the assessment is really saying. Is it about underreported income? Disallowed deductions? Unremitted withholding taxes? You should know exactly what triggered the assessment so that you can focus your response on the issues that matter most.
Involve your internal accounting and finance team early in the review process. Start by comparing the BIR’s figures with your own records to identify any gaps, inconsistencies, or possible errors. From there, you can begin to spot mistakes, locate missing documentation, and highlight areas where your position is defensible. Having a clear understanding of these details is essential before preparing and filing any formal response.
3) Prepare and File a Written Protest within 30 Days
Once you receive the FAN, you have 30 calendar days to file a formal protest, which includes a protest letter outlining your objections. This letter is your official opportunity to contest the assessment and must clearly state your legal and factual grounds. Again, if you miss this deadline, that means that the assessment becomes final, even if it’s incorrect.
It’s best to treat this step with urgency and precision. Work with your lawyer and accountant to ensure that your protest is well-structured and backed by supporting documents. Whether you’re explaining why an expense should be deductible or showing that a sale was properly reported, your protest lays the groundwork for the BIR’s review and possibly for court proceedings if the case escalates.
4) Submit Additional Supporting Documents within 60 Days
After you file your protest, you’re given an additional 60 days to submit your documentary evidence. This is your opportunity to back up your claims with receipts, sales invoices, contracts, financial statements, or any other documents that support your case. The stronger and more organized your supporting documents are, the better your chances of reaching a favorable resolution.
Use this time wisely to prepare a clear and well-labeled submission. Organize your attachments, include brief explanations where necessary, and ensure that everything is easy to follow. Your goal is to help the BIR clearly see where their assessment may be incorrect and why your position is justified.
5) Monitor BIR’s Response and Be Ready to Escalate if Needed
Once your complete protest and supporting documents are submitted, the BIR has 180 days to act on your case. If they issue a decision you disagree with—or if they don’t respond at all—you can elevate the matter to the Court of Tax Appeals (CTA). Note that you only have 30 days from either the BIR’s decision or the lapse of the 180-day period to file your appeal.
At this stage, legal representation becomes even more important. Filing with the CTA involves formal court pleadings, hearings, and possibly expert witnesses. Your lawyer will guide you through the legal procedures and help you present your case effectively before the court.
6) Explore Settlement Options When Appropriate
Sometimes, even if you have valid arguments, it might be more practical to explore a settlement. The BIR allows compromise settlements in cases where the assessment has doubtful validity or when the taxpayer can show financial incapacity. This option can significantly reduce your tax liability, especially if your business is recovering from a downturn or facing cash flow issues.
A tax lawyer can assess whether your case qualifies for a compromise, help prepare the necessary paperwork, and negotiate with the BIR. Remember that opting for a settlement is not an admission of wrongdoing; rather, it’s a legal and often tactical way to resolve a dispute without going through a full-blown court battle.
With this briefer, you should now have a clearer understanding of how to approach a tax assessment dispute. Knowledge of the proper steps and timelines can help protect your business from costly penalties and long-term complications. When in doubt, consult a trusted tax lawyer to help you navigate the dispute process with clarity.
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