In most cases, the Bureau of Internal Revenue cannot validly issue a Final Assessment Notice without first serving a Preliminary Assessment Notice. The Preliminary Assessment Notice, or PAN, tells the taxpayer what deficiency taxes the BIR proposes to assess and gives the taxpayer a chance to answer before the assessment becomes final. However, Section 228 of the National Internal Revenue Code allows the BIR to skip the PAN in five specific situations. Outside those exceptions, a Final Assessment Notice issued without a PAN may be void for violating the taxpayer’s right to due process.

The General Rule: The BIR Must Issue a PAN First

Section 228 of the National Internal Revenue Code, as amended, requires the BIR to inform a taxpayer in writing of the law and facts on which a proposed assessment is based.

The normal sequence is:

The BIR identifies possible tax deficiencies during an audit or investigation.
The BIR issues a Preliminary Assessment Notice.
The taxpayer receives 15 days from receipt of the PAN to submit a written response.
The BIR evaluates the taxpayer’s explanations and documents.
If the BIR still believes taxes are due, it issues a Formal Letter of Demand and Final Assessment Notice, commonly called the FLD/FAN.

Revenue Regulations No. 18-2013 expressly provides that the PAN must state the facts and the law, rules, regulations, or jurisprudence supporting the proposed assessment. If the taxpayer does not respond within 15 days, the taxpayer is considered in default and the BIR may proceed with the FLD/FAN. (Lawphil)

The PAN is therefore not a meaningless formality. It is the taxpayer’s opportunity to correct factual errors, explain transactions, produce missing records, and challenge the BIR’s legal position before a formal assessment is issued.

What Are a PAN, FAN, and FLD?

These documents serve different functions.

BIR document	What it means	Usual taxpayer action
Notice of Discrepancy or NOD	Identifies issues discovered during the audit and invites the taxpayer to explain them. It is not yet an assessment.	Attend or respond to the discussion and submit supporting records.
Preliminary Assessment Notice or PAN	States the BIR’s proposed deficiency taxes and their factual and legal bases.	Submit a written reply within 15 days from receipt.
Formal Letter of Demand and Final Assessment Notice or FLD/FAN	Formally assesses the deficiency and demands payment.	File a valid administrative protest within 30 days from receipt.
Final Decision on Disputed Assessment or FDDA	States the BIR’s decision on the taxpayer’s protest.	Appeal to the Court of Tax Appeals within the applicable 30-day period.

A PAN concerns a proposed assessment. An FLD/FAN is the formal assessment that may become final, executory, and collectible when it is not protested on time.

The FLD and FAN are commonly issued together. The FAN normally contains the tax computation, while the FLD communicates the formal demand for payment. Courts generally examine the documents together when determining whether a valid assessment exists.

When Can the BIR Issue a FAN Without a PAN?

Section 228 contains five exceptions. The BIR may issue an FLD/FAN directly when the case clearly falls under one of them.

1. A mathematical error appears on the face of the tax return

The BIR may skip the PAN when the deficiency results from an obvious mathematical or clerical error in the return.

For example, a taxpayer lists taxable transactions totaling ₱5 million but incorrectly adds them as ₱4 million. Because the error is visible from the return itself, the BIR may correct it and issue a formal demand without going through a PAN.

This exception does not ordinarily cover disputed accounting judgments, disallowed expenses, transfer-pricing adjustments, or questions about whether a transaction is taxable. Those matters require factual or legal evaluation.

2. The tax withheld does not match the amount remitted

A PAN is unnecessary when the amount withheld by a withholding agent is inconsistent with the amount actually remitted to the government.

For example, an employer’s records show that ₱300,000 was withheld from employees, but only ₱250,000 was paid to the BIR. The BIR may directly assess the ₱50,000 discrepancy.

3. The taxpayer both claimed and carried over the same excess withholding tax

The BIR may issue an FLD/FAN without a PAN when a taxpayer claims a refund or tax credit for excess creditable withholding tax but also carries over and applies the same amount against the following year’s tax liability.

This prevents the taxpayer from receiving two benefits from the same tax credit.

4. Excise tax on excisable articles has not been paid

The BIR may dispense with a PAN when the excise tax due on excisable goods has not been paid.

Excisable articles include products such as alcohol, tobacco products, petroleum products, automobiles, mineral products, sweetened beverages, and certain other goods covered by the Tax Code.

5. Tax-exempt articles are transferred to a non-exempt person

A PAN is not required when an article purchased or imported tax-free by an exempt person is subsequently sold, transferred, or traded to a person who is not entitled to the exemption.

The transferee may become liable for the unpaid tax arising from the loss or misuse of the exemption.

These five situations are narrowly stated in the Tax Code. The BIR cannot create additional exceptions merely for administrative convenience. (Lawphil)

Reasons That Do Not Normally Allow the BIR to Skip the PAN

The following circumstances do not, by themselves, fall within the statutory exceptions:

The assessment involves a large amount.
The BIR believes the taxpayer underdeclared income.
The taxpayer failed to attend a Notice of Discrepancy discussion.
The taxpayer did not submit all documents requested during the audit.
The BIR discovered information from banks, customers, suppliers, or third-party data.
The BIR is approaching the deadline for issuing an assessment.
The taxpayer participated in the audit and already knows the issues.
The BIR suspects fraud.
The taxpayer’s accountant or representative discussed the findings with the examiner.

Even when the taxpayer is aware of the audit issues, awareness is not necessarily a substitute for the formal opportunity to answer a PAN.

The Supreme Court has repeatedly emphasized that a taxpayer’s later protest against the FAN does not automatically cure the BIR’s failure to provide the earlier opportunity required by law.

Why a PAN Is Part of Substantive Due Process

In Commissioner of Internal Revenue v. Metro Star Superama, Inc., the Supreme Court explained that the issuance and receipt of a PAN are part of the taxpayer’s right to due process. A formal assessment issued without the required PAN, outside the statutory exceptions, is void.

The Court stressed that the requirement is substantive, not merely procedural. The taxpayer must be informed of the proposed findings and given a real opportunity to respond before the BIR makes its final assessment. (Supreme Court E-Library)

The same principle was applied in Commissioner of Internal Revenue v. Yumex Philippines Corporation. The taxpayer received the PAN and FLD/FAN on the same day. Although a PAN technically existed, the taxpayer had no meaningful opportunity to use the 15-day response period before the formal assessment was issued.

The Supreme Court ruled that the BIR could issue the FLD/FAN only after the taxpayer had responded to the PAN or had failed to respond within the allowed period. Receiving the PAN and FAN together did not satisfy due process. The taxpayer’s later protest and partial payment did not cure the defect. (Supreme Court E-Library)

In Prime Steel Mill, Inc. v. Commissioner of Internal Revenue, the Supreme Court similarly rejected the argument that there was substantial compliance when the BIR issued the FAN before the PAN response period had expired. The required opportunity to answer must be genuine, not merely theoretical. (Lawphil)

A Notice of Discrepancy Does Not Replace the PAN

Under current BIR audit procedures, taxpayers may first receive a Notice of Discrepancy. The NOD identifies issues discovered during the audit and gives the taxpayer an opportunity to explain its side during the pre-assessment stage.

Revenue Memorandum Order No. 1-2026 directs BIR personnel to state the discrepancies specifically and clearly so that taxpayers can understand the issues. It also recognizes that a Notice of Discrepancy is not yet an assessment. (Bir Cdn)

This distinction is important:

An NOD begins the discussion of audit findings.
A PAN communicates the proposed assessment.
An FLD/FAN formally assesses and demands payment.

Attending an NOD conference does not normally waive the taxpayer’s right to a PAN. The BIR must still issue a PAN unless one of the five statutory exceptions applies.

The Usual BIR Assessment Process

Although individual cases vary, an ordinary deficiency tax audit generally follows these stages.

1. Issuance of a Letter of Authority

The audit normally begins with a Letter of Authority, or LOA, authorizing specifically named revenue officers to examine the taxpayer’s books and records for stated taxable periods.

The validity and scope of the LOA are separate from the PAN issue. A taxpayer may have defenses concerning both the authority to conduct the audit and the manner in which the resulting assessment was issued.

2. Examination of books and records

The revenue officers may request documents such as:

Tax returns and payment confirmations
Audited financial statements
General and subsidiary ledgers
Sales and purchase journals
Invoices and official supporting records
Withholding tax certificates
Bank statements and reconciliations
Contracts and transaction documents
Payroll and employee records
Importation or customs documents
Schedules supporting deductions and tax credits

3. Notice of Discrepancy and discussion

The BIR may issue an NOD setting out the discrepancies discovered during the audit. The taxpayer should answer each issue with documents, calculations, and legal explanations.

This stage often resolves errors caused by incomplete records, misclassified transactions, mismatched withholding tax information, or the examiner’s reliance on third-party data without full context.

4. Preliminary Assessment Notice

If material issues remain unresolved, the BIR generally issues a PAN. The taxpayer has 15 days from receipt to respond.

The reply should address every tax type, period, and adjustment. It should not merely state that the taxpayer disagrees.

5. Formal Letter of Demand and Final Assessment Notice

After considering the PAN response—or after the taxpayer defaults—the BIR may issue the FLD/FAN.

The FLD/FAN must state the facts and legal bases supporting the assessment. An unexplained table of amounts, a generic reference to the Tax Code, or a computation without a meaningful explanation may be insufficient, depending on the circumstances. Revenue Regulations No. 18-2013 states that an FLD/FAN that fails to provide the factual and legal bases is void.

6. Administrative protest

The taxpayer must protest the FLD/FAN within 30 days from receipt. A protest filed after that period may be rejected, causing the assessment to become final, executory, and demandable.

7. BIR decision and Court of Tax Appeals proceedings

If the BIR denies the protest, the taxpayer generally has 30 days from receipt of the FDDA to appeal to the Court of Tax Appeals.

When the BIR does not act within the applicable 180-day period, the taxpayer may either appeal within the period allowed after the lapse of 180 days or wait for the BIR’s decision. The choice has serious procedural consequences and must be calendared carefully.

When a FAN May Be Invalid Even Though a PAN Was Issued

The mere existence of a document labeled “PAN” does not always establish a valid assessment process.

The FAN was issued too early

The BIR should not issue the FLD/FAN before the taxpayer’s 15-day PAN response period expires, unless the taxpayer has already submitted its response and the BIR has properly evaluated it.

Issuing the PAN and FAN on the same day is a strong indication that the taxpayer was denied a meaningful opportunity to answer.

The PAN or FAN does not explain the assessment

The notices must give the taxpayer enough information to understand:

The transactions being questioned
The taxable period involved
The amount and type of tax assessed
How the deficiency was computed
The facts relied upon by the BIR
The legal provisions supporting the adjustment

A notice that merely cites broad provisions of the Tax Code without connecting them to the taxpayer’s transactions may not satisfy Section 228.

The BIR ignored material explanations

The BIR does not have to accept the taxpayer’s position. However, due process requires genuine consideration of relevant explanations and evidence.

In Commissioner of Internal Revenue v. Avon Products Manufacturing, Inc., the Supreme Court emphasized that the BIR must consider the taxpayer’s explanations and state the reasons for rejecting them. The assessment process should not be an empty ritual in which the BIR issues notices without meaningfully addressing the taxpayer’s defenses. (Supreme Court E-Library)

The document does not make a definite demand

A valid formal assessment must ordinarily communicate a definite liability and a demand for payment. A preliminary computation, audit worksheet, informal conference report, or tentative list of findings is not automatically a FAN.

There are defects in service

Receipt dates determine the deadlines for responding to a PAN, protesting a FAN, and appealing an FDDA.

BIR notices may be served personally, through substituted service in permitted circumstances, or through registered mail, reputable professional courier, and other authorized methods. Service on a duly authorized representative may also be effective under the applicable rules.

A taxpayer who says, “I never saw the PAN,” should determine whether it was delivered to:

The taxpayer’s registered business address
An employee or responsible person at the premises
The taxpayer’s registered or authorized representative
An old address that the taxpayer failed to update with the BIR
A location shown in the BIR’s registration records

The absence of the taxpayer’s personal knowledge is not always the same as the absence of valid service.

What to Do If You Receive a FAN Without a PAN

Do not ignore the FAN simply because it may be defective. Until the assessment is successfully challenged, the BIR may treat it as collectible.

1. Record the exact date of receipt

Keep the envelope, courier pouch, registry notice, routing slip, email transmission, and receiving log.

The 30-day protest period is counted from receipt, so proof of the date may determine whether the protest is timely.

2. Check whether a Section 228 exception applies

Compare the assessment with the five statutory exceptions.

Ask whether the assessment truly results from:

A mathematical error visible on the return
A withholding-remittance mismatch
A duplicated refund or carryover claim
Unpaid excise tax
A transfer of tax-exempt articles to a non-exempt person

If the assessment instead involves undeclared income, disallowed deductions, VAT classification, unsupported purchases, transfer pricing, related-party transactions, or disputed withholding obligations, the BIR generally cannot skip the PAN merely because it believes its findings are correct.

3. Reconstruct the complete audit record

Gather:

The Letter of Authority and any amendments
Requests for documents
Notice of Discrepancy
Minutes or notes of meetings
Emails and correspondence with BIR personnel
Any PAN received
Proof of delivery or non-delivery
PAN response, if one was submitted
FLD/FAN and accompanying schedules
Envelopes, courier records, registry receipts, and receiving stamps

Requesting a copy of the BIR’s administrative records may reveal a PAN that was allegedly mailed or served.

4. File an administrative protest within 30 days

Even when the assessment appears void, the safer practical course is generally to file a timely protest rather than rely on the defect alone.

The protest should clearly state:

That no PAN was received or validly served
That none of the Section 228 exceptions applies
That the taxpayer was denied the 15-day opportunity to respond
That the FLD/FAN is void for violation of due process
That the taxpayer also disputes the factual and legal merits of each assessment item

Raising only the missing-PAN issue can be risky if the BIR later proves that a PAN was validly served. Addressing the merits preserves additional defenses.

5. Dispute every assessment item that is genuinely contested

Revenue Regulations No. 18-2013 provides that issues not disputed in a valid protest may become final, executory, and demandable.

The protest should identify each challenged tax type, taxable period, adjustment, penalty, and computation.

6. Choose between reconsideration and reinvestigation

A request for reconsideration asks the BIR to re-evaluate the assessment based on existing records. It generally does not depend on newly submitted evidence.

A request for reinvestigation asks the BIR to reconsider the assessment using newly discovered or additional evidence.

For a reinvestigation, supporting documents must generally be submitted within 60 days from filing the protest. Failure to submit them on time may cause the assessment to become final.

7. Obtain proof of filing

For physical submissions, obtain a receiving stamp showing the date, office, number of pages, and attachments.

For courier submissions, retain the waybill and proof of delivery. For authorized electronic filing, preserve the sent message, attachments, timestamps, and acknowledgment.

8. Calendar every succeeding deadline

Track at least:

Fifteen days to answer the PAN
Thirty days to protest the FLD/FAN
Sixty days to submit documents for reinvestigation
The applicable 180-day BIR action period
Thirty days to appeal an FDDA or qualifying BIR inaction to the Court of Tax Appeals

These are generally statutory or jurisdictional deadlines. Informal discussions with examiners do not ordinarily stop them.

Documents to Prepare

Document	Why it matters
FLD/FAN and assessment schedules	Shows the assessed taxes, periods, computations, and asserted legal bases
Envelope, registry notice, or courier pouch	Helps prove the date and manner of service
PAN, if any	Shows whether it was issued, when it was received, and what issues it raised
PAN response	Establishes the defenses and evidence previously submitted
Notice of Discrepancy	Identifies the issues discussed before assessment
Letter of Authority	Identifies the authorized examiners, periods, and scope of audit
Tax returns and payment records	Establishes the amounts declared and paid
Books, invoices, contracts, and schedules	Supports the substantive defenses
Withholding tax certificates	Supports credits and withholding remittances
Corporate authority documents	Establishes the representative’s authority to sign and file
Proof of all BIR submissions	Helps demonstrate timely compliance

A corporation’s protest should be signed by a properly authorized officer or representative. Depending on the circumstances, the BIR may request a secretary’s certificate, board resolution, special power of attorney, or other proof of authority.

For foreign taxpayers or foreign companies, the same PAN and FAN rules generally apply. When corporate authority documents are executed abroad, the BIR may require proper notarization and an apostille for documents originating from an Apostille Convention country. Documents from non-member countries may require consular authentication or legalization. The exact requirement should be confirmed based on the issuing country and the receiving BIR office. (Apostille.gov.ph)

Common Real-Life Scenarios

The taxpayer made an obvious addition error

A business correctly listed its monthly sales but made an arithmetic error when totaling the figures. The deficiency is visible from the return itself.

Likely result: The BIR may issue an FLD/FAN without a PAN under the mathematical-error exception.

The BIR disallowed business expenses without issuing a PAN

The examiner disallowed rent, professional fees, and representation expenses for lack of substantiation, then issued an FLD/FAN without a PAN.

Likely result: The assessment generally does not fall within any Section 228 exception. The taxpayer has a strong due-process objection but should still file a timely protest addressing both the procedural defect and the supporting documents for the expenses.

The PAN and FAN arrived in one courier package

The taxpayer received both notices on the same day, and the FAN had already been issued before the taxpayer could respond to the PAN.

Likely result: The process may be void because the taxpayer was denied the full and meaningful opportunity to answer recognized in Yumex and Prime Steel Mill.

The taxpayer declared tax due but did not pay it

A taxpayer filed a return showing ₱500,000 payable but failed to pay the amount.

Likely result: The BIR may collect the amount admitted in the taxpayer’s own return without first issuing a deficiency assessment. This is different from a disputed deficiency independently determined by the BIR.

In SMI-ED Philippines Technology, Inc. v. Commissioner of Internal Revenue, the Supreme Court recognized that taxes are generally self-assessed and that an amount declared as payable may be collected without a separate deficiency assessment. More recently, Commissioner of Internal Revenue v. Stradcom Corporation distinguished those self-assessed liabilities from disputed amounts independently determined by the BIR, for which a valid assessment and the required due process remain essential. (Lawphil)

Frequently Asked Questions

Is a FAN automatically void if I did not personally receive a PAN?

Not automatically. The key question is whether a PAN was validly issued and served. It may have been delivered to the taxpayer’s registered address or authorized representative. Obtain the BIR’s service records and examine the delivery details.

Can the BIR skip the PAN because I ignored the Notice of Discrepancy?

Generally, no. Failure to answer an NOD is not one of the five exceptions under Section 228. The BIR may continue the audit, but it must ordinarily issue a PAN before the FLD/FAN.

Is a verbal discussion with the examiner equivalent to a PAN?

No. Section 228 requires written notice of the facts and law supporting the proposed assessment. Meetings, calls, worksheets, and informal computations do not ordinarily replace the formal PAN requirement.

What if the FAN was issued before my 15-day PAN period ended?

The assessment may be void for denial of due process. Supreme Court decisions have invalidated assessments where the BIR issued the FAN before giving the taxpayer a genuine opportunity to respond.

Can I wait for the BIR to collect before challenging the missing PAN?

That is risky. A FAN not protested within 30 days may become final, executory, and demandable. File a timely protest and raise the missing-PAN defense immediately.

Does filing a protest waive my argument that the FAN is void?

No. Filing a protest does not necessarily validate a defective assessment. In Yumex, the Supreme Court held that the taxpayer’s later protest and payment did not cure the denial of the opportunity to respond to the PAN.

Must I dispute the tax computation if my main defense is lack of a PAN?

Yes, as a practical matter. Raise both the procedural defect and every available factual and legal defense. This protects the taxpayer if the BIR later establishes that the PAN was validly served or that an exception applies.

Can the BIR issue a new assessment after the original FAN is declared void?

Possibly. A void assessment does not necessarily erase the underlying tax liability. If the legal period for assessment remains open, the BIR may be able to restart or correct the process and issue a valid assessment. Prescription depends on the filing date, the nature of the return, possible fraud or failure to file, and any valid waiver extending the assessment period.

Does the missing-PAN rule apply to self-assessed unpaid taxes?

Not in the same way. When the taxpayer’s own return already admits a definite amount due, the BIR may collect that admitted amount without issuing a PAN and FAN. A PAN is principally relevant when the BIR independently determines a deficiency beyond what the taxpayer declared.

Which court handles an appeal from a disputed BIR assessment?

Appeals from BIR decisions on disputed assessments generally fall within the jurisdiction of the Court of Tax Appeals. The appeal period is usually 30 days from receipt of the FDDA or from the applicable point following BIR inaction, depending on the remedy selected.

Key Takeaways

The BIR must ordinarily issue and serve a PAN before issuing an FLD/FAN.
The taxpayer normally has 15 days from receipt of the PAN to respond.
Section 228 allows the BIR to skip the PAN only in five narrowly defined situations.
A Notice of Discrepancy, audit discussion, or informal computation does not replace the PAN.
A PAN and FAN issued together—or a FAN issued before the PAN response period ends—may violate due process.
The PAN and FLD/FAN must explain the factual and legal bases of the assessment.
A taxpayer who receives a FAN without a PAN should still file a detailed protest within 30 days.
The protest should challenge both the procedural validity of the assessment and its substantive merits.
Taxes admitted as payable in the taxpayer’s own return may be collected without a separate deficiency assessment.
Receipt dates, proof of service, supporting documents, and strict deadline tracking are often decisive.