Know the truth and be warned to protect yourself from corrupt and abusive Bureau of Internal Revenue (BIR) examiners who openly harass and threaten taxpayers with the issuance of a subpoena duces tecum to extort money from ignorant and innocent taxpayers.
Here are the 5 big lies about the BIR audit that you must know.
1. Audit begins upon receipt of first notice with submission of all documentary requirements as provided in a checklist.
When does audit begin? The audit process begins with the issuance and receipt of an electronic Letter of Authority (eLA or LOA) to a taxpayer who has been selected for audit.
The checklist of documentary requirements must be discussed and clarified with the BIR as not all documents are applicable and can be provided by a taxpayer.
2. A revenue officer (commonly known as a BIR examiner) can audit a taxpayer as long as he wants or until a taxpayer agrees to compromise. It has no prescription.
How much time does a BIR examiner have to audit a selected taxpayer? A BIR examiner is allowed only 180 days for regional cases and 240 days for large taxpayer (LT) cases from the date of receipt of eLA to conduct the audit and submit the required report.
Although failure of the BIR examiner to submit the audit report within the prescribed period will not nullify the eLA, it is only valid and enforceable within the 3-year prescriptive period from the filing of the tax return.
The BIR examiner who also fails to submit the audit report shall be subject to any applicable administrative sanction, which should include suspension and/or termination from revenue service.
3. A taxpayer cannot be audited for 3 consecutive years.
Can a taxpayer be audited for 3 consecutive years? Yes. Based on RMO 64-2016, the 3-year consecutive audit of the same taxpayer can be approved by the regional director or assistant commissioner who heads the investigating office.
4. If you lack documentary requirements, the BIR examiner can immediately issue a subpoena duces tecum, and this will require you to show up in court.
Can a BIR examiner issue a subpoena duces tecum for failure of a taxpayer to provide all documentary requirements? No. Even if a taxpayer fails to provide all documentary requirements, a BIR examiner can only recommend the issuance of a subpoena duces tecum to the BIR's legal division.
The subject of the subpoena is not the taxpayer but the required documents. A taxpayer will not be required to show up in court but he or she should provide the required documents or explain why he or she cannot provide it.
5. Even if you pay the right taxes, the BIR examiner will still harass you to compromise. It's okay as "everybody" is doing it and you can claim the bribe money as tax credit or deductible expense. Even tax lawyers and accountants recommend that you compromise or pay bribe money.
Can the same BIR examiner audit you every year? No. But they can endorse you to another group especially if you easily and generously paid bribe money to your previous BIR examiners.
Are all taxpayers audited every year? No, only those who are obviously non-compliant and those who are willing to compromise and pay bribe money to BIR examiners.
Can the BIR harass you with a huge assessment and demand higher "compromise money" even if you're paying taxes? Yes. If you cannot provide the required documents and prove their assessment wrong, it would give the BIR examiner leverage to threaten you, which could force you to pay bribe money. The illegal amount is usually higher than the amount which will be officially remitted to the government.
Can a taxpayer who paid bribe money claim it as tax credit or deductible expense? No. Our tax code clearly prohibits or disallows bribe money as deductible expense.
If your tax lawyer or accountant is the one negotiating on your behalf with the BIR, don't be surprised if later on you'll find out they make more money from the compromises or at least receive a percentage of the bribe money. You've got a professional fixer!
So, how can I stop a BIR audit? How can I stop them from extorting money every year? Nobody can stop the BIR from auditing any taxpayer. But taxpayers can decide to stop bribing BIR examiners, start fixing their books, and pay the right taxes.
In partnership with the BIR and Integrity Initiative, the Center for Strategic Reforms of the Philippines (CSR Philippines) launched the Seal of Honesty Certification Program which aims to give taxpayers who have been regularly audited and who have been compromising for the last 3-5 years or more to start paying the right taxes without compromises through a 3-year Citizen Tax Planning.
As advocacy partner of the BIR and DTI, CSR Philippines' commitment is to help promote SME development and genuine tax reform, including paying the right taxes to promote inclusive growth.
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Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country's first social consulting enterprise, the Abrea Consulting Group, which offers strategic finance and tax advisory services to businesses and professionals. Mon's tax handbook, Got a Question About Taxes? Ask the Tax Whiz! is available in bookstores nationwide. Follow Mon on Twitter (@askthetaxwhiz) or visit his group's Facebook page. You may also email him at firstname.lastname@example.org.