In taxation, taxpayers often hear of documents issued by the Bureau of Internal Revenue such as the “Letter Notice” and the “Letter of Authority”

The two document are distinct from each other, and knowing the distinction spells the difference between a valid and invalid assessment by the BIR.

Here is what happened to a taxpayer-client:

On November 21, 2011, taxpayer received a copy of Letter Notice (“LN”) No. 034-RLF-08-00-000xxx date November 15, 2011 from the BIR.

In the L.N. the BIR informed the taxpayer of a 100% discrepancy between her value-added tax (“VAT”) returns, and information provided by third party suppliers.

Pursuant to the L.N. a “Memorandum of Assignment” was subsequently issued to a Revenue Officer to conduct an audit/verification of all of taxpayer’s internal revenue tax liabilities.

Thereafter a Preliminary Assessment Notice and a Final Assessment Notice was issued against the taxpayer.

Is this a correct procedure?

The answer is No.

The reason: A Letter of Authority was not issued to the Revenue Officer to conduct examination.

Hence, we ought to know what is a  “Letter Notice”, and how different is it from a “Letter of Authority”.

Here is the procedure after a taxpayer is issued by the BIR with  a Letter Notice or LN:

When a taxpayer who has been issued an LN refutes the discrepancy shown in the LN, the concerned taxpayer will be given an opportunity to reconcile its records with those of the BIR

Taxpayer has One Hundred and Twenty (120) days from the date of the issuance of the LN to resolve/reconcile its records.

In case the discrepancies remained unresolved at the end of the One Hundred and Twenty (120)-day period, the revenue officer (RO) assigned to handle the LN shall recommend the issuance of a Letter of Authority (LOA) to replace the LN.

The head of the concerned investigating office shall submit a summary list of LNs for conversion to Letters of Authority.

And LoA always follows the issuance of the LN in case discrepancies raised by a taxpayer pursuant to the LN remains unresolved.

An LoA cancels an LN.

The following differences between an LOA and LN are crucial:

First, an LOA addressed to a revenue officer is specifically required by law before an examination of a taxpayer may be had.

While an LN is not found in the law, it is only for the purpose of notifying the taxpayer that a discrepancy in his tax records has been found by the BIR.

Second, an LOA is valid only for 30 days from date of issue while an LN has no such limitation.

Third, an LOA gives the revenue officer only a period of 120 days from receipt of LOA to conduct his examination of the taxpayer whereas an LN does not contain such a limitation.

Simply put, LN is entirely different and serves a different purpose than an LOA.

Due process demands, that after an LN has served its purpose, the revenue officer should have properly secured an LOA before proceeding with the further examination and assessment of the petitioner.

So things that taxpayers must remember, a Letter Notice does not give the BIR authority to conduct examination. An LoA does.

Without an LoA, BIR cannot conduct examination and assessment.

(Cited case: Medicard Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 222743, April 05, 2017.)