What is the effect of a taxpayer's failure to respond to a Notice of Discrepancy?

• A. The taxpayer is deemed to have waived his right to participate in that stage, and the Notice of Discrepancy ripens into a Preliminary Assessment Notice (PAN); however, the taxpayer may still question the assessments upon PAN and FAN.
• B. The Notice of Discrepancy is automatically dismissed and no assessment can be issued.
• C. The taxpayer is permanently barred from challenging any assessment.
• D. The case is immediately forwarded to the court for resolution.

Answer: (A)

When the tax authority sends a Notice of Discrepancy, it invites the taxpayer to explain or correct the discrepancy. If the taxpayer does not respond within the allotted time, that inaction is treated as a waiver of the participation right at that stage. The Notice of Discrepancy then ripens into a Preliminary Assessment Notice, meaning the case moves forward with the proposed assessment. Importantly, the taxpayer still has an avenue to challenge the proposed figures later, specifically at the PAN and again at the FAN. This structure keeps the audit progressing while preserving the taxpayer’s opportunity to contest the assessment through the formal protest or appeal processes as the case develops.