In the Philippine tax landscape, the Bureau of Internal Revenue (BIR) wields the power of assessment to ensure the government receives its due. However, this power is not absolute. Taxpayers often raise a critical question: Can the BIR audit me more than once for the same taxable year? Navigating the rules on audit frequency requires an understanding of the National Internal Revenue Code (NIRC), as amended, and the administrative issuances that govern the conduct of revenue officers.
The General Rule: The "Once-a-Year" Audit Policy
Under Section 235 of the NIRC, the general principle is that the books of accounts and other accounting records of taxpayers shall be examined and inspected only once for any given taxable year.
This rule serves as a safeguard against "fishing expeditions" and harassment, ensuring that businesses are not perpetually bogged down by repetitive examinations that disrupt operations. Once a Letter of Authority (LOA) has been served, the audit conducted, and the case closed, the taxpayer should, under normal circumstances, be immune from another investigation for that same period.
Exceptions: When Multiple Audits are Permitted
The law provides specific instances where the "once-a-year" rule is set aside, allowing the Commissioner of Internal Revenue (CIR) to authorize a subsequent examination:
- Fraud, Irregularity, or Mistakes: If there is reasonable ground to believe that the taxpayer has committed fraud, or if there were mathematical errors or "patent irregularities" discovered in the previous audit.
- Request by the Taxpayer: When the taxpayer themselves requests a reinvestigation or submits amended returns that necessitate a new look at the books.
- Verification of Compliance with Specific Taxes: Sometimes, an audit for one type of tax (e.g., Income Tax) does not preclude a focused investigation for another (e.g., Value-Added Tax or Withholding Tax), provided the scopes are clearly delineated.
- Compliance with Court Orders: If a court (such as the Court of Tax Appeals) orders a re-examination as part of a judicial proceeding.
- Audit by Different Offices: A common point of friction occurs when different BIR offices (e.g., the Large Taxpayers Service vs. a Revenue District Office) attempt to audit the same period. Generally, the office with primary jurisdiction prevails, but exceptions exist for specific tax types.
The Role of the Letter of Authority (LOA)
The LOA is the "jurisdictional requirement" for any tax audit. Without a valid LOA specifically naming the revenue officers and the taxable period to be examined, any assessment resulting from the audit is void.
- Scope Creep: If an LOA specifies "Income Tax for 2023," the BIR cannot use that same document to demand records for "VAT for 2023" or "Income Tax for 2024."
- Revalidation: If an audit is not completed within a specific timeframe (usually 120 days), the LOA must be revalidated. However, revalidation does not count as a "second audit"; it is a continuation of the first.
Simultaneous Investigations vs. Successive Investigations
It is important to distinguish between having two audits at the same time and having a second audit follow a completed one.
- Simultaneous Investigations: This usually occurs when there is a lack of coordination between BIR branches. Taxpayers can move to cancel the more recent LOA by proving that an existing audit for the same period and tax type is already underway.
- Successive Investigations: If the BIR attempts to open a "new" audit for a year that has already been cleared (e.g., after the issuance of a Termination Letter), they must prove one of the exceptions under Section 235 (such as the discovery of newly found fraud).
Jurisprudence and Protections
The Supreme Court and the Court of Tax Appeals (CTA) have consistently held that the BIR must strictly follow the procedural requirements of the NIRC.
Key Doctrine: An assessment issued without a valid LOA, or one that violates the "once-a-year" rule without a legal exception, is a violation of the taxpayer's right to due process. Such assessments are considered "null and void" and cannot be enforced.
Summary Table: Audit Limits
| Feature | Regulation/Rule |
|---|---|
| Standard Frequency | Once per taxable year per taxpayer. |
| Primary Authority | Section 235 of the NIRC. |
| Mandatory Document | Letter of Authority (LOA). |
| Common Exception | Fraud, falsification, or non-disclosure of material facts. |
| Taxpayer Remedy | Motion to Cancel LOA or Protest of Assessment based on "Prior Audit." |
Practical Considerations for Taxpayers
If served with a second LOA for a year already audited, a taxpayer should:
- Check the Scope: Verify if the tax types mentioned in the second LOA differ from the first.
- Present the Termination Letter: Show evidence (such as a previous Letter of Termination or Authority to Cancel Assessment) that the prior year's audit was already concluded.
- Formal Protest: If the BIR insists on proceeding, the taxpayer may need to file a formal protest or a Petition for Review with the CTA to quash the second investigation based on a violation of Section 235.