A BIR Preliminary Assessment Notice, or PAN, can feel alarming because it usually lists proposed deficiency taxes, surcharge, interest, and compromise penalties. The most important thing to know is this: a PAN is not yet the final assessment, but it is a serious procedural stage. You usually have only 15 days from receipt to respond, and the way you reply can strongly affect what happens when the BIR later issues the Formal Letter of Demand and Final Assessment Notice.

What a BIR Preliminary Assessment Notice means

A Preliminary Assessment Notice (PAN) is the BIR’s written notice that, after audit review, it believes there is sufficient basis to assess you for deficiency taxes.

In simple terms, the BIR is saying:

“Based on our audit, we think you underpaid taxes. Here are the facts, legal basis, and computation. Explain why this should not become a final assessment.”

Under Revenue Regulations No. 12-99, as amended by Revenue Regulations No. 18-2013, the PAN must show in detail the facts and the law, rules, regulations, or jurisprudence on which the proposed assessment is based. The taxpayer has 15 days from receipt of the PAN to respond. If no response is filed, the taxpayer is considered in default, and the BIR may issue the Formal Letter of Demand and Final Assessment Notice, commonly called the FLD/FAN. (Supreme Court E-Library)

Technically, you do not “protest” a PAN in the same way you protest a final assessment. The formal administrative protest is filed against the FLD/FAN within 30 days from receipt. But in everyday practice, many taxpayers and accountants still say “protest the PAN” to mean filing a written reply disputing the proposed assessment.

PAN reply vs. FAN protest: why the distinction matters

Stage	What it means	Deadline	What you file
Notice of Discrepancy (NOD), if issued	Initial audit discrepancy discussion stage	Generally within the discussion/submission period stated in the notice	Explanation and documents
Preliminary Assessment Notice (PAN)	Proposed assessment	15 days from receipt	Reply to PAN
Formal Letter of Demand / Final Assessment Notice (FLD/FAN)	Final assessment and demand for payment	30 days from receipt	Administrative protest: request for reconsideration or reinvestigation
Final Decision on Disputed Assessment (FDDA)	BIR decision on your protest	30 days from receipt to appeal to CTA, if adverse	Petition for review with the Court of Tax Appeals

This distinction is critical because missing the PAN deadline does not automatically mean the tax is already final, but it allows the BIR to move forward to the FLD/FAN. Missing the 30-day FAN protest period, however, can make the assessment final, executory, and demandable. (Supreme Court E-Library)

Legal basis for responding to a PAN

The main legal basis is Section 228 of the National Internal Revenue Code of 1997, as amended by Republic Act No. 8424 and later tax laws. Section 228 requires the BIR to inform the taxpayer in writing of the law and facts on which an assessment is made; otherwise, the assessment is void. (Lawphil)

The detailed procedure is found in:

Revenue Regulations No. 12-99, which sets the due process rules for deficiency tax assessments.
Revenue Regulations No. 18-2013, which amended the assessment procedure, including the PAN, FLD/FAN, FDDA, and service rules.
Revenue Regulations No. 22-2020 and Revenue Memorandum Circular No. 102-2020, which introduced and prescribed the format for the Notice of Discrepancy stage before the PAN. (Bir.gov.ph)

The Supreme Court has repeatedly treated tax assessment due process as a substantive taxpayer right. In CIR v. Liquigaz Philippines Corporation, the Court emphasized that merely listing tax amounts is not enough; the taxpayer must be informed of the factual and legal bases so that an intelligent protest or appeal can be made. (Supreme Court E-Library)

When a PAN is not required

A PAN is not required in every case. Under Section 228 of the Tax Code and RR No. 18-2013, the BIR may issue the FLD/FAN outright in specific situations, including:

The deficiency tax is due to a mathematical error on the face of the return.
There is a discrepancy between tax withheld and tax actually remitted by the withholding agent.
A taxpayer claimed a refund or tax credit for excess creditable withholding tax but also carried over the same amount to the next taxable period.
Excise tax due on excisable articles was not paid.
An exempt person sold, transferred, or traded an article that was locally purchased or imported tax-free. (Supreme Court E-Library)

If your case does not fall under these exceptions, failure to properly issue or serve a PAN can be a serious due process issue. In CIR v. Metro Star Superama, Inc., the Supreme Court treated the failure to prove receipt of the PAN as a due process defect that invalidated the assessment. (Lawphil)

What to do immediately after receiving a PAN

1. Record the exact date, time, and manner of receipt

The 15-day period is counted from receipt, so your first job is to preserve proof of when the PAN was received.

Write down:

Date and time received
Name of the person who received it
Position of the recipient
Whether it was personally served, mailed, couriered, or received by an authorized tax agent
BIR office that issued it
Name of the revenue officer or assessment division contact person

Keep the envelope, courier pouch, registry notice, transmittal sheet, or receiving copy. These details may later matter if there is a dispute on whether the PAN was validly served.

RR No. 18-2013 allows service of PAN, FLD/FAN, and FDDA by personal service, substituted service, or mail. It also treats service on a duly appointed tax agent or practitioner as service on the taxpayer. (Supreme Court E-Library)

2. Check whether the BIR officers had valid audit authority

Before focusing only on the computation, check whether the audit itself was authorized.

Look for the Letter of Authority (LOA) or electronic Letter of Authority (eLA). Confirm that:

It covers the correct taxable year or period.
It covers the correct tax types.
The revenue officers who conducted the audit are named or properly authorized.
Any reassignment of officers was supported by a valid new or amended authority, not merely an internal memorandum.

In CIR v. McDonald’s Philippines Realty Corp., the Supreme Court ruled that due process requires the taxpayer to know that the revenue officers conducting the audit are duly authorized; the LOA must link the named officers to the audit authority. (Supreme Court E-Library)

3. Read the PAN issue by issue, not just the total amount

A PAN usually contains several proposed deficiency tax findings, such as:

Income tax
Value-added tax (VAT)
Percentage tax
Expanded withholding tax
Withholding tax on compensation
Final withholding tax
Documentary stamp tax
Fringe benefits tax
Improperly claimed input VAT
Disallowed deductions
Unreconciled sales or purchases
Unsubstantiated expenses
Alphalist or withholding certificate discrepancies

Do not respond with a general denial. Make a spreadsheet with one row per issue:

PAN issue	BIR finding	Amount	Your explanation	Documents needed
Alleged undeclared sales	Difference between VAT returns and books	₱___	Timing difference / duplicate entry / exempt sales	VAT returns, general ledger, invoices, reconciliation
Disallowed expense	Lack of substantiation	₱___	Expense is ordinary, necessary, and supported	OR/SI, contracts, proof of payment
EWT deficiency	Alleged failure to withhold	₱___	Payee not subject / tax already withheld	BIR Forms 2307, alphalist, contracts

This issue-by-issue approach prevents one common mistake: answering only the biggest item while accidentally leaving smaller items undefended.

4. Gather documents fast

At the PAN stage, time is short. Prioritize documents that directly answer the BIR’s findings.

Common supporting documents include:

Issue	Useful documents
Sales discrepancy	Sales invoices, official receipts, VAT returns, income tax returns, general ledger, sales journal, POS reports
Input VAT disallowance	VAT invoices, proof of payment, supplier details, import entries, customs documents
Expense disallowance	Receipts/invoices, contracts, purchase orders, proof of payment, board approvals, liquidation reports
Withholding tax deficiency	BIR Forms 1601, 0619, 2307, alphalists, payroll records, contracts with suppliers
Compensation tax	Payroll register, employment contracts, benefits schedules, annualization working papers
Related-party issues	Contracts, transfer pricing documentation, board minutes, invoices, proof of actual services
Foreign payments	Tax treaty documents, certificates of residence, bank remittance records, withholding tax returns

For foreign documents, especially if signed or issued abroad, check whether the BIR may require notarization, consular authentication, or an apostille under the Apostille Convention. This often affects foreign contracts, certificates of tax residence, board authorizations, and special powers of attorney.

5. Prepare a clear written reply to the PAN

Your PAN reply should be direct, organized, and evidence-based.

A practical format is:

Heading and reference details
- Taxpayer name
- TIN
- Registered address
- Taxable year or period
- PAN date
- Date of receipt
- BIR office and revenue officer
Opening statement
- State that you are replying within the 15-day period.
- State that you disagree with all or specific findings.
- Identify attached supporting documents.
Issue-by-issue discussion
- BIR finding
- Taxpayer’s facts
- Legal basis
- Correct computation
- Supporting annexes
Summary table
- Proposed assessment per PAN
- Amount disputed
- Amount conceded, if any
- Corrected amount, if any
Prayer or requested action
- Request cancellation, reduction, or revision of the proposed assessment.
- Request that the BIR consider the attached documents before issuing any FLD/FAN.

6. File the reply properly and keep proof

File the PAN reply with the BIR office that issued the notice, such as the Revenue District Office, Regional Assessment Division, Large Taxpayers Service, or National Office division handling the case.

Bring at least:

Original signed reply
One receiving copy for the taxpayer
One or more extra copies if the BIR requires them
Annexes properly marked and paginated
Authorization documents for the person filing

Always obtain a receiving stamp showing the date, office, and signature or initials of the receiving BIR personnel. If you send by registered mail or courier, keep the registry receipt, tracking report, proof of delivery, and a complete copy of what was sent.

Email may be useful as a supplemental copy if the revenue officer requests it, but do not rely only on email unless the BIR office clearly authorizes that mode for your filing.

Sample structure for a PAN reply

A PAN reply does not need to be written in complicated legal language. What matters is clarity and proof.

A strong opening may read:

We respectfully submit this Reply to the Preliminary Assessment Notice dated ___, received on ___. The taxpayer disagrees with the proposed deficiency assessments for income tax, VAT, and expanded withholding tax for taxable year ___ for the reasons stated below. The proposed assessments are based on reconciliable timing differences, duplicate sales matching, and expenses supported by valid invoices, contracts, and proof of payment, as shown in Annexes “A” to “K.”

Then discuss each issue separately:

Issue 1: Alleged undeclared sales The PAN compares gross receipts per VAT returns against income per audited financial statements without considering year-end accruals and reversed entries. Annex “A” reconciles the amounts per books, VAT returns, and income tax return. Annexes “B” to “D” contain the supporting sales journal, VAT return schedules, and adjusting entries.

This is more effective than saying, “We disagree with the assessment because our taxes were correctly paid.”

Common mistakes when replying to a PAN

Ignoring the PAN because it is “not final”

A PAN is not final, but ignoring it gives the BIR a clear path to issue the FLD/FAN. The PAN reply is often your best chance to correct factual errors before the case becomes more rigid.

Filing a general denial without documents

Statements like “the assessment is baseless” or “the taxpayer complied with all tax laws” do little unless supported by reconciliations, returns, invoices, ledgers, contracts, and legal explanation.

Forgetting to check the BIR’s authority

Many taxpayers focus only on numbers and miss threshold due process issues, such as lack of a valid LOA, wrong revenue officer, wrong taxable period, or assessment outside the BIR’s authority.

Treating the PAN reply as the formal protest

After the PAN, the BIR may still issue the FLD/FAN. If you receive an FLD/FAN, you must separately file a valid administrative protest within 30 days from receipt. The earlier PAN reply does not replace the FAN protest.

Missing some issues

If the BIR later issues an FLD/FAN with several issues and you protest only some of them, the undisputed items may become final, executory, and demandable. RR No. 18-2013 specifically warns that issues not properly disputed may be treated as undisputed. (Supreme Court E-Library)

Relying on verbal discussions

Meetings with revenue officers are useful, but verbal explanations are not enough. Put your position in writing and submit documents with proof of receipt.

What happens after you file the PAN reply

After receiving your reply, the BIR will evaluate whether to cancel, revise, or proceed with the proposed assessment.

If the BIR still disagrees, RR No. 18-2013 states that an FLD/FAN shall be issued within 15 days from the filing or submission of the taxpayer’s response, calling for payment of the deficiency tax liability, including applicable penalties. (Supreme Court E-Library)

Once the FLD/FAN is received, the case enters the formal protest stage.

At that point, you must choose between:

Type of protest	Meaning	When useful
Request for reconsideration	Asking the BIR to reevaluate based on existing records, without new evidence	When all documents are already submitted and the dispute is mainly legal or computational
Request for reinvestigation	Asking the BIR to reevaluate based on newly discovered or additional evidence	When you need to submit additional documents after filing the protest

For a request for reinvestigation, the taxpayer must submit all relevant supporting documents within 60 days from filing the protest. The 60-day document period does not apply to a request for reconsideration. (Supreme Court E-Library)

When the case can reach the Court of Tax Appeals

You generally do not go to the Court of Tax Appeals just because you received a PAN. The usual route is:

PAN
FLD/FAN
Administrative protest
FDDA or BIR inaction
CTA appeal, if necessary

The CTA has exclusive appellate jurisdiction over decisions of the Commissioner of Internal Revenue in disputed assessments, and also over inaction where the Tax Code provides a specific period for action. Republic Act No. 9282, which amended the CTA law, provides the CTA’s jurisdiction over BIR disputed assessments and inaction. (Supreme Court E-Library)

If the BIR denies the protest through an FDDA, the taxpayer generally has 30 days from receipt to appeal to the CTA. If the BIR fails to act within the applicable 180-day period, the taxpayer may have remedies based on inaction, subject to strict timing rules. RR No. 18-2013 also states that the options after BIR inaction can be mutually exclusive, so the chosen remedy must be handled carefully. (Supreme Court E-Library)

Penalties and interest in a PAN

A PAN may include:

Basic deficiency tax
Surcharge, commonly 25% or 50% depending on the violation
Deficiency interest
Delinquency interest, when applicable
Compromise penalties, depending on the alleged violation

Under RR No. 21-2018, implementing the TRAIN Law amendments to Section 249 of the Tax Code, the interest rate under Section 249 became 12% per year beginning January 1, 2018, based on double the 6% legal interest rate. The regulation also states that deficiency and delinquency interest should not be imposed simultaneously after the TRAIN Law took effect.

Always recompute the BIR’s interest and surcharge. Errors in dates, tax bases, payment application, and simultaneous interest can materially change the amount.

Special situations for OFWs, foreigners, and nonresident taxpayers

Foreigners and Filipinos abroad can receive BIR assessments if they have Philippine tax obligations, such as:

A Philippine business or branch
Rental income from Philippine property
Sale of Philippine real property or shares
Philippine-source income
Estate or donor’s tax matters involving Philippine property
Withholding tax issues involving Philippine payors

The assessment procedure is generally the same, but practical problems often arise:

The taxpayer is abroad and does not learn of the PAN immediately.
The registered Philippine address is outdated.
A bookkeeper, relative, guard, or former employee receives the notice.
The taxpayer needs to authorize someone locally to file the reply.
Foreign documents must be notarized and apostilled or authenticated.

For taxpayers abroad, a properly drafted Special Power of Attorney (SPA) or board authorization is often needed so a local representative can receive notices, attend BIR meetings, sign submissions if authorized, and file documents on time.

Frequently Asked Questions

How many days do I have to reply to a BIR PAN?

You generally have 15 days from receipt of the PAN to file your written reply. The deadline starts from actual or valid constructive receipt, not from the date you personally read the notice.

Is a PAN already a final assessment?

No. A PAN is a proposed assessment. The final assessment is usually the Formal Letter of Demand and Final Assessment Notice (FLD/FAN). However, failing to reply to the PAN allows the BIR to proceed to the FLD/FAN.

Can I ask the BIR for an extension to reply to a PAN?

You may submit a written request, but you should not assume it will be granted. The regulations provide a 15-day response period. The safer approach is to file a timely initial reply with available documents, then state clearly if additional documents are being gathered.

What happens if I ignore the PAN?

The BIR may consider you in default and issue the FLD/FAN. You may still protest the FLD/FAN within 30 days from receipt, but your failure to answer the PAN can weaken your position because the BIR may say you did not refute the proposed findings earlier.

Can the BIR issue a FAN even if I replied to the PAN?

Yes. If the BIR evaluates your reply and still finds deficiency taxes due, it may issue the FLD/FAN. Your next remedy is to file a proper administrative protest within 30 days from receipt of the FLD/FAN.

What if the PAN does not explain the facts and law?

A PAN should state the factual and legal basis of the proposed assessment. Lack of sufficient factual and legal basis may support a due process objection, especially if the defect continues into the FLD/FAN or affects your ability to make an intelligent protest.

Do I need to pay the PAN amount immediately?

A PAN is not yet the final demand for payment. You may dispute it through a written reply. If you agree with some findings, you may consider paying the uncontested portion, but clearly document what you are paying and what you are still disputing.

Can I go directly to the Court of Tax Appeals after receiving a PAN?

Generally, no. A PAN is preliminary. The ordinary remedy is to respond to the PAN, wait for the FLD/FAN if the BIR proceeds, file an administrative protest, and appeal to the CTA only after an adverse decision or actionable inaction.

What is the difference between reconsideration and reinvestigation?

A request for reconsideration asks the BIR to reevaluate the assessment based on existing records. A request for reinvestigation relies on newly discovered or additional evidence. The 60-day period for submitting relevant supporting documents applies to reinvestigation.

What if I am abroad when the PAN is received in the Philippines?

Act quickly through a local representative. Prepare an SPA or proper corporate authorization, check who received the PAN and when, secure a full scanned copy with attachments, and file the reply within the 15-day period if still possible.

Key Takeaways

A PAN is a proposed assessment, not yet the final assessment.
The usual deadline to respond to a PAN is 15 days from receipt.
The formal protest is filed against the FLD/FAN, not the PAN, and the deadline is 30 days from receipt.
A strong PAN reply should answer each issue with facts, law, computations, and documents.
Check both the numbers and the BIR’s due process compliance, including proper service and valid audit authority.
Do not rely on verbal explanations; file a written reply and keep proof of receipt.
If an FLD/FAN is later issued, file a separate and valid administrative protest on time.
Missing the FAN protest deadline can make the assessment final, executory, and demandable.