Audit suspension: A festive break for taxpayers

Christmas came early for many taxpayers this year through Revenue Memorandum Circular (RMC) No. 107-2025. While it’s not unusual for the BIR to stop its audit and field operations during the Christmas season, this year’s announcement came as a surprise. On Nov. 24, the BIR issued an order suspending all audit and other field operations until further notice, to be lifted only by the Commissioner of Internal Revenue.

It’s no secret that in recent years, many taxpayers have struggled to keep their heads above water. The BIR has taken the aggressive approach to assessments, often issuing Letters of Authority (LoAs) one after another, even before the prior year’s assessment was completed. For those who’ve experienced this cycle, the issuance of RMC No. 107-2025 offers the perfect time to pause, breathe, and bring prior and current filings into full compliance, and prepare for a fresh start in 2026.

A TIME FOR REFLECTION AND CORRECTION
Taxpayers seasoned in BIR audits are familiar with what we often call the “usual BIR findings.” These typically include, but are not limited to, issues such as failure to withhold and/or remit withholding taxes, undeclaration of income/sales, unsubstantiated expenses, and compromise penalties. Any of these can easily trigger an assessment from the BIR.

Fortunately, this suspension of audit provides taxpayers a valuable opportunity to address mistakes or oversight in their records. Let’s explore what taxpayers can do to correct or improve their practices and ensure accuracy of filing.

• Check for discrepancies

In most assessments, the BIR would compare the taxpayer records, such as the Audited Financial Statements (AFS), Income Tax Return (ITR), and VAT Declaration. Discrepancies among these documents often lead to deficiency taxes. This kind of finding is common and can easily be addressed with explanations and supporting documents.

As early as now, taxpayers can go through its records and check internally and identify any inconsistencies the BIR might flag. Should there be any, taxpayers may correct any information or prepare a reconciliation and explanation ahead of any issuance of an assessment. More importantly, doing a self-assessment can help prevent future mistakes.

One of the best ways to respond to the BIR in such findings is to identify the source of the discrepancy. Often the difference could arise from accounting treatment versus tax rules; for example, the timing difference in the reporting of revenue in the ITR versus that in a VAT return, or the timing of claiming expenses in the ITR as against the withholding tax return. Section 43 of the National Internal Revenue Code, no less, recognizes the right of taxpayers to employ their own method of accounting, so long as it reflects proper income. However, specific rules govern revenue declarations in VAT returns and expense reporting in withholding tax returns. So long as you have followed the tax rules, then the differences between records and among tax returns should be of no concern.

• Check for compliance history

Some taxpayers receive assessments for unpaid taxes, late filing, or non-payment of penalties due to missed deadlines, or failure to submit attachments. These issues often stem from simple oversight but can result in significant costs when discovered by the BIR. In some cases, the findings regarding unpaid taxes and late filings are even accompanied by a demand to pay an additional compromise penalty.

Luckily, taxpayers can easily check their yearly/monthly compliance history with the BIR, by requesting a list of open cases. This check list covers monthly, quarterly, and yearly BIR reports and provides a good opportunity to settle any unpaid taxes and penalties on late filing, without fear of additional compromise penalty.

There may be instances where the BIR report is inaccurate, showing open cases for unpaid taxes or unfiled returns. These can be rebutted by presenting the proof of compliance to the BIR.

• Check for accuracy of reported income and expenses

One of the ways for the BIR to determine whether taxpayers have undeclared/unreported income is through Third Party Information (TPI). Through its Reconciliation of Listings for Enforcement (RELIEF) System, the BIR cross-references the taxpayer’s summary list of purchases against TPI. Any discrepancy may lead to deficiency taxes.

To avoid this, ensure that your records match those of your customers or suppliers. Coordinate regularly to confirm accurate reporting of transactions. Review your Summary List of Purchases/Sales for errors such as incorrect TIN or sliding error that could cause mismatches with third party submissions.

Although the Supreme Court has ruled that TPI may only be used in tax assessments if it is accompanied by sworn statements from TPI sources, through confirmation or certification on the information, it is best to verify your own records proactively rather than discover errors during an audit.

• Fraudulent transactions

The BIR will always be on the watch for any indication of fraud, as gleaned from the ITR and AFS. For example, a sudden huge deduction claimed in the ITR or a significant drop in reported income may raise red flags suggesting possible tax evasion.

If your records reflect such significant changes, prepare supporting documents to justify them — whether it’s a legitimate expense claim or a business downturn. In these cases, proper documentation and clear presentation to the BIR are key to defending your position.

The issues above are among the most common issues in BIR audits, and they can easily be resolved before any notice is issued. One thing is clear, taxpayers must ensure that records are accurate, complete, and properly maintained. Taking proactive steps now can save time, money, and stress later.

THE AFTERMATH OF STOP AUDIT
While the suspension of audits remains in effect, taxpayers should seize this opportunity to strengthen their compliance even before the BIR has a reason to issue them an LoA. Receiving LoAs from the BIR is hardly a gift to celebrate — it often feels like solving a complex puzzle, trying to make sense of the BIR’s findings on deficiency taxes. Luckily, puzzles can be solved with planning and practice.

If there’s one key takeaway from the stop audit, it is the opportunity to improve tax compliances and set the record straight. Proactive review and correction are the best defense against unwanted BIR notices, which taxpayers can prepare for ahead of time.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

Joselle Mariano is a senior associate from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd. pagrantthornton@ph.gt.com