Letter of Authority and Letter Notice

Letter Notice Not a Valid Substitute for Letter of Authority in Tax Audit

MediCard Philippines vs. CIR; G.R. No. 222743

Unless authorized by the CIR himself or by his duly authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily be undertaken…

The National Internal Revenue Code (NIRC) under Section 6 in relation to Section 13 requires that an audit investigation be made by a Revenue Officer pursuant to a Letter of Authority (LOA) issued by the Commissioner of Internal Revenue or his duly authorized representative.

What if an audit investigation is conducted and an assessment is made pursuant to a Letter Notice (LN)?  Is a Letter Notice a valid and sufficient substitute for a Letter of Authority? This issue was addressed by the Supreme Court in the case of MEDICARD PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE.



Finding some discrepancies between MEDICARD’s Income Tax Returns (ITR) and VAT Returns, the CIR informed MEDICARD and issued a Letter Notice dated September 20, 2007. Subsequently, the CIR issued a Preliminary Assessment Notice (PAN) against MEDICARD for deficiency VAT. On. January 4, 2008, MEDICARD received CIR’s FAN dated December’ 10, 2007 for alleged deficiency VAT for taxable year 2006 in the total amount of ₱196,614,476.69,10 inclusive of penalties.

Its protest having been denied, MEDICARD filed a petition for review before the Court of Tax Appeals. MEDICARD argued, in part, that the assessment was void for it was issued without a Letter of Authority.  Undaunted by the adverse Decision of the Court of Tax Appeals, MEDICARD appealed to the Supreme Court via a petition for review on certiorari.


Whether the assessment was void for lack of Letter of Authority.



Letter of Authority

An LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. An LOA is premised on the fact that the examination of a taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR himself or his duly authorized representatives.

Indispensability of LOA in Tax Audit

Based on Section 6 of the NIRC, it is clear that unless authorized by the CIR himself or by his duly authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily be undertaken. The circumstances contemplated under Section 6 where the taxpayer may be assessed through best-evidence obtainable, inventory-taking, or surveillance among others has nothing to do with the LOA. These are simply methods of examining the taxpayer in order to arrive at the correct amount of taxes. Hence, unless undertaken by the CIR himself or his duly authorized representatives, other tax agents may not validly conduct any of these kinds of examinations without prior authority

Letter Notice Not Valid Substitute for Letter of Authority

The Court cannot convert the LN into the LOA required under the law even if the same was issued by the CIR himself. Under RR No. 12-2002, LN is issued to a person found to have underreported sales/receipts per data generated under the RELIEF system. Upon receipt of the LN, a taxpayer may avail of the BIR’s Voluntary Assessment and Abatement Program. If a taxpayer fails or refuses to avail of the said program, the BIR may avail of administrative and criminal remedies, particularly closure, criminal action, or audit and investigation. Since the law specifically requires an LOA and RMO No. 32-2005 requires the conversion of the previously issued LN to an LOA, the absence thereof cannot be simply swept under the rug, as the CIR would have it. In fact Revenue Memorandum Circular No. 40-2003 considers an LN as a notice of audit or investigation only for the purpose of disqualifying the taxpayer from amending his returns.

An LN is entirely different and serves a different purpose than an LOA. Due process demands, as recognized under RMO No. 32-2005, that after an LN has served its purpose, the revenue officer should have properly secured an LOA before proceeding with the further examination and assessment of the petitioner. 

 Not having authority to examine MEDICARD in the first place, the assessment issued by the CIR is therefore inescapably void.