BIR loses 1.1B tax case due to wrong service of LOA

The Court of Tax Appeals (CTA) has cancelled the P1.1 billion deficiency tax assessment against a Central Luzon-based drug company due to faulty serving of Letter of Authority (LA) to investigate.

In a 23-page decision, the court’s Special Third Division stated the investigation was done by an examiner of the Bureau of Internal Revenue (BIR) who had no LA to audit the Central Luzon Drug Corporation, a franchisee of the Mercury Drug Corporation and operates 52 stores in Region 3.

SOURCE: Jun Ramirez (2018). BIR losses P1.1B assessment case. Published November 19, 2018, 7:22 PM.
An audit process to which a particular taxpayer may be subjected begins when a letter of authority is issued by the Commissioner of Internal Revenue or by the Revenue Regional Director. The letter of authority is an official document that empowers a revenue officer to examine and scrutinize a taxpayer's books of accounts and other accounting records in order to determine the taxpayer's correct internal revenue tax liabilities.

The Letter of Authority must be carefully prepared and erasures shall be avoided as much as possible, particularly in the name and address of the taxpayer and the assessment number. A new one should be made if material erasures.appear on any Letter of Authority. The period covered by the authority must be stated definitely, The use of such phrases as "last five years, " "1962 and up, " "1962 and previous years" and all others of similar import shall not be allowed. In the preparation of the Letter of Authority the Revenue District Officer must not put the date, the same shall be sup plied by the Director immediately before the release thereof by his Office.

The revenue officer so authorized must not go beyond the authority given; otherwise, the assessment or examination is a nullity. Corollarily, the extent to which the authority must be exercised by the revenue officer must be clearly specified. (J. Leonen's concurring and dissenting opinion in G.R. No. 196596)