Change of Books of Accounts

September 10, 1958 BIR RULING NO. 526-58 Mr. Salvador M. Leonido 822 Ilaya St. Manila S i r : In answer to the queries contained in your letter dated December 7, 1957, I have the honor to inform you as follows: A taxpayer contemplating to change his books of accounts to suit the needs of his business should, before using the new books, present the latter to the Commissioner of Internal Revenue, if his place of business is in Manila, or to the provincial revenue officer or deputy provincial or city treasurer, if his place of business is the province, for approval and registration in accordance with Section 19 of Revenue Regulations No. V-1, as amended. The entries in the old books should be closed as of the date immediately preceding the date the new books are used. In this connection, it may be stated that under Section 334 of the Tax Code, the choice of the principal books of accounts which a taxpayer should keep and use is limited to either the journal and ledger, or their equivalents, or the simplified set of bookkeeping records, depending upon whether or not his gross quarterly sales, earnings, receipts, or output exceed P5,000.00. Under Section 335 of the same Code, however, the taxpayer may, at his option, keep and use such subsidiary books as the needs of his business may require. Pursuant to Section 44(b) of Revenue Regulations No. 2, the Income Tax Regulations, gross income from long-term contracts may be reported in the taxable year in which the contract is finally completed and accepted if the taxpayer elects as a consistent practice to so treat such income, provided such method clearly reflects the net income. In such case, the taxpayer need not secure the permission of the Commissioner of Internal Revenue. On the other hand, if the taxpayer has been employing a method of accounting different from that prescribed by said Section 44(b) and he desires to change it to the latter method, an application for permission to change such method and the basis upon which the Income Tax Return is to be made should be filed with this Office within ninety (90) days after the beginning of the taxable year to be covered by the return, pursuant to Section 168 of the aforesaid Regulations. However, permission shall not be granted unless the taxpayer and the Commissioner of Internal Revenue agree to the terms and conditions under which the change will be effected. A statement showing the composition of all items appearing on the taxpayers balance sheet and used in connection with the method of accounting formerly employed by him shall accompany his return, pursuant to Section 44(b) mentioned above. Service and retainer fees paid to professionals are not subject to the withholding tax on wages, because the relationship of employer and employee does not exist between the persons or entities paying said fees and the recipients thereof. Very truly yours, (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue