Letter of Authority: what it means when the BIR formally opens an audit on you
When the BIR issues a Letter of Authority, the formal examination clock starts. Here is what the document means, what your rights are, and how to respond.
What is a Letter of Authority?
A Letter of Authority (LOA) is the official document the BIR uses to formally notify you that your tax returns are being examined. It names you as the taxpayer, lists the taxable years under review, and identifies the specific officer or team authorized to conduct the audit. Think of it as the BIR's written declaration that a formal examination has begun.
One important rule: you cannot legally be compelled to open your books to a BIR examiner unless they present a valid LOA. You have the right to ask for one before cooperating.
Why does the BIR issue one?
Taxpayers are selected for examination in different ways. Automated systems compare your declared figures against industry averages and third-party data. Other triggers include information received from another party, a mismatch between your returns and the withholding certificates your clients or employers submitted, or simply a compliance drive focused on a particular sector, profession, or income bracket.
Receiving an LOA does not mean you are suspected of fraud. It means the BIR wants to confirm that your declarations match your actual records.
What happens during the examination?
After the LOA is issued, the assigned examiner will request supporting records: books of accounts, official receipts or invoices, and the documents you used to prepare your returns for the covered years. The official BIR rules set time limits for how long examiners have to complete an audit. A case that goes unresolved beyond those limits may no longer be valid.
If the examiner finds items they want you to explain, they issue a Notice of Discrepancy. This is not yet an assessment; it is an invitation to respond. You can present additional documents, clarify entries, and discuss the figures before any formal tax deficiency is officially raised against you.
Your rights during the process
You are not helpless when an LOA arrives:
- You may only deal with the officers whose names appear on the LOA. If someone else arrives and asks for your records, request their written authority first.
- You can ask the examiner to explain the legal and factual basis for any proposed adjustment. Assessments must be supported by specific grounds.
- You may bring a certified public accountant or tax lawyer to represent you. Professional advice reduces the risk of misunderstandings that could turn into larger problems.
- If you disagree with a final assessment, you have the right to formally protest it. The official BIR rules provide a specific window for doing so; missing that deadline is one of the most costly mistakes in a tax dispute.
How to be ready before any letter arrives
You do not need to wait for an LOA before thinking about audit readiness. A few habits help:
Keep your filed returns and supporting documents for as long as the official BIR rules require for your type of taxpayer and situation. Reconcile the income on your returns against any withholding certificates you issued or received. Make sure your books of accounts tell the same story as your tax returns; a gap between the two is usually the first place an examiner looks.
If you are unsure what retention period applies to you, or what a specific line in a notice means, type your question into AskOnward. It is grounded in the official BIR rules and gives you a plain-language answer so you can take the right next step before the stakes get any higher.
This article is for general information and is not affiliated with the government. For official forms and the latest rules, see the Bureau of Internal Revenue at bir.gov.ph.