Operations Memorandum No. 2014-12-03

November 19, 2014 OPERATIONS MEMORANDUM NO. 2014-12-03 TO : All Regional Directors ATTENTION : All Revenue District Officers All Chiefs, Regional Collection Divisions All Chiefs, Regional Finance Divisions All Chiefs, Regional Legal Divisions All Others Concerned Records showed that as of December 31, 2013, the outstanding balance of the account "Other Receivables" (SL 149-002 Dishonored Checks thru Banks) in the National Office (NO) National Government (NG) books of accounts amounted to over P430.86 million. This account pertains to the accumulated balances of Dishonored Checks (DCs) for the period 1987 to 2013 that are still appearing in the NO-NG books of accounts, the accuracy of which may be considered doubtful. It has been noted that some of these accounts were already redeemed by the concerned taxpayers but such redemptions are not yet reflected in the books of accounts being maintained by the Revenue Accounting Division (RAD) due to the absence of the requisite supporting documents such as BIR Form No. 12.61 (Report of Dishonored Checks Redeemed) and/or the settlement thereof could not be validated by the RAD from the ITS-Collection and Bank Reconciliation System (CBRS) because the manual issuance of Revenue Official Receipts (RORs) were not encoded by the concerned Revenue District Offices (RDOs). SDHTEC Pursuant to the recommendation made by the Commission on Audit (COA)-Bureau of Internal Revenue (BIR) Resident Auditor, as contained in Audit Observation Memorandum (AOM) NG 2014-08 (2013) dated March 21, 2014, this Operations Memorandum is issued to implement the proper treatment of DCs in the Bureau's books of accounts and financial statements. The following policies and guidelines must be observed by all concerned offices in handling delinquent accounts arising from DCs: A. Proper Treatment of Dishonored Checks Received and Redeemed 1. All delinquent accounts arising from DCs received from the concerned Authorized Agent Banks (AABs) or Authorized Government Depository Banks (AGDBs) shall not be recorded in the NO-NG Books of account as "Other Receivables". All DCs received must be automatically considered as delinquent accounts and the same must be reflected "New Cases Created" in the General Control Ledger (GCL) required to be maintained by all concerned offices. 2. All DCs received by the RDO from AABs and AGDBs must be encoded immediately in the "Dishonored Checks" module in the ITS-CBRS upon receipt of the said checks (Please refer to RMO No. 25-2001 dated October 16, 2001 and OM No. 2014-04-01 dated April 10, 2014). 3. For RDOs where the Accounts Receivable Management System (ARMS) has already been deployed, all DCs must likewise be encoded in the "Create Case" module in the said system (Please refer to OM No. 2014-01-01 dated April 10, 2014). 4. The outstanding DC cases being handled by the Regional Legal Divisions (RLDs) shall always form part of the inventory of unredeemed DCs that must be included in the AR/DA inventory per GCL until the same are fully settled by the concerned taxpayers. Furthermore, all outstanding DCs where the case dockets are physically located in other offices of the Bureau ( e.g., Regional Investigation Division, and other concerned legal offices in the NO, etc.) shall likewise form part of the GCL accounts required to be maintained by the concerned offices. In order to ensure the full accounting of these outstanding DCs that are needed to be reflected in the GCLs, the Regional Collection Divisions (RCDs) shall conduct thorough validation of their records to determine whether or not all concerned offices have fully complied with the reporting requirements set forth in this OM. 5. Redemption of DCs must be reflected in the "Cases Closed" column of the GCL. However, in cases where additional penalties were collected, other than the penalties reflected in the "New Cases Created", the additional collections made due to updating of delinquency interests from DCs should not be included in the amount of "Cases Closed" column because this may only create distortions in the AR/DA amount in the GCL due to incorrect treatment of such additional payments as "overpayments" of the amount due from the taxpayer. 6. All redemptions of DCs shall be considered as new tax collections of the Bureau; and the same shall be processed and recorded in the NO-NG books of accounts in accordance with the existing policies and procedures. In order to effectively monitor redemptions of DCs by all concerned offices of the Bureau, the provisions of Item No. 1 of OM No. 12-04-001 dated March 22, 2012 shall be strictly observed as follows: AScHCD "xxx xxx xxx Require the concerned taxpayers to use only BIR Form 0605 (Payment Form) in the course of the redemption of dishonored checks indicating the following: a. Return period b. Tax type c. Delinquent account d. Amount in the settlement of their dishonored checks per RMO No. 25-2001. xxx xxx xxx" 7. Considering that the AR/DA inventory in the GCL are already net of the DCs redeemed, such redemptions shall not be separately disclosed in the Bureau's financial statements. 8. All unredeemed DCs shall be considered as delinquent accounts and reported as such in the GCLs until these delinquent accounts are collected from the concerned taxpayers. B. Adjustment of "Other Receivables" (SL 149-002 Dishonored Checks thru Banks) that are Already Recorded in the NO-NG Books of Accounts 1. Other Receivables Recorded in the NO-NG Books of Accounts that are Already Reported in the GCL 1.1. The RAD shall provide all RDOs and RCDs not later than December 29, 2014 with a List of Outstanding DCs in the NO-NG books of accounts as of June 30, 2014, copy furnished the Accounts Receivable Monitoring Division (ARMD). 1.2. The RDOs shall submit, in return, to the RAD the inventory list of all DCs that are included in their respective GCLs as of June 30, 2014 duly certified correct by the Chief, RCDs, copy furnished the ARMD on or before December 29, 2014. For Metro Manila regional offices with Arrears Management Teams (AMTs) the Chief, Collection Division shall submit to the RAD the Inventory List of DCs that are included in the GCL of RDOs under RR Nos. 5, 6, 7 and 8, except the Island RDOs under RR No. 6-Manila as of June 30, 2014, on or before December 29, 2014. 1.3. The ARMD shall validate from the Master List of ARs/DAs maintained by its office whether or not the taxpayers reflected in the list of taxpayers with outstanding DCs are actually included in their respective GCLs. The validated list shall be submitted to RAD, copy furnished ACIR, Collection Service, on or before December 29, 2014. 1.4. The RAD shall match the ARMD-validated list of outstanding DCs in the GCLs of concerned offices with the list of unredeemed DCs appearing in the account "Other Receivables" in the NO-NG books of accounts. Thereafter, the RAD shall prepare and approve the appropriate Journal Entry Vouchers (JEVs) to effect the necessary adjustments to the "Other Receivables" account in NO-NG books of accounts. AcICHD 1.5. The ARMD shall require the concerned RDOs/RCDs to amend their respective GCLs in cases of existence of unredeemed DCs included in the submitted report mentioned in Item No. A.8 of this OM but not reflected in the GCLs originally submitted to the ARMD. The concerned RDOs/RCDs shall prepare and submit to ARMD their amended GCLs within ten (10) days from receipt of such notification. For this purpose, the ARMD shall continuously monitor the compliance of the concerned RDOs/RCDs with this requirement. 2. Other Receivables that are Already Redeemed but are still in the NO-NG Books of Accounts 2.1. The RAD shall provide all RDOs and RCDs not later than December 29, 2014 with a List of Outstanding DCs in the NO-NG books of accounts as of June 30, 2014, copy furnished the ARMD. 2.2. The RDOs/RCDs shall, in cases where the requisite documents evidencing the redemption of DCs are not physically available, request confirmation of DC redemption from the concerned taxpayers together with copies of the documents evidencing the settlement of these accounts. 2.3. The RDOs/RCDs shall submit to the RAD pertinent documents relative to the redemptions of DCs such as Monthly Report of DCs Redeemed (BIR Form No. 12.61), together with the copies of the proofs of payments of these delinquent accounts. For redemption of DCs thru Revenue Official Receipts (RORs), the certification by the Chief, Regional Finance Division (RFD) that the said collections were actually deposited to the concerned AGDBs, together with the certified photocopy/ies of the deposit slips, must be attached to the Monthly Report of DCs Redeemed (BIR Form No. 12.61) to be submitted to RAD. 2.4. The RAD shall validate the accuracy and completeness of the submitted reports and supporting documents. Thereafter, the RAD shall prepare and approve JEV to record the redemption of the DCs. In case the submitted reports and documents are found to be inaccurate and/or incomplete, the RAD shall immediately inform in writing the concerned RDOs/RCDs of such observations or findings for their immediate necessary action within ten (10) days from receipt thereof. 2.5. All the above-mentioned procedures must be made or undertaken by all the concerned offices until such time that the unredeemed DCs recorded in the NO-NG books of accounts shall have been fully settled by the delinquent taxpayers. 3. Unredeemed DCs Recorded as Other Receivables in the NO-NG Books of Accounts but not Included in the GCL 3.1. The RAD shall provide all RDOs and RCDs not later than December 29, 2014 with a List of Outstanding DCs in the NO-NG books of accounts as of June 30, 2014, copy furnished the ARMD. TAIaHE 3.2. The RDOs/RCDs shall prepare and submit to the ARMD, copy furnished the RAD, not later than December 29, 2014, the amended GCLs to reflect the ARs/DAs not classified under Item Nos. B.1 and B.2 of this OM. 3.3. The RAD shall coordinate with the ARMD to determine whether or not the concerned RDOs/RCDs have complied with the aforementioned requirement. 3.4. The RAD shall prepare and approve the appropriate JEVs to effect the necessary adjustments to the "Other Receivables" account in NO-NG books of accounts. 3.5. The RDOs/RCDs shall regularly monitor the outstanding DCs under this classification until these accounts are determined to have been fully redeemed and the prescribed reports and supporting documents thereon are submitted to RAD, copy furnished the ARMD. 3.6. In case the outstanding DCs could no longer be collected from the concerned taxpayers despite diligent efforts exerted by the RDOs/RCDs and the said accounts will fall squarely within the definition of "AR/DA for Write-off" pursuant to Section II.5 of RMO No. 11-2014, the appropriate recommendation for the cancellation of these accounts from the GCL may be made pursuant to the policy provisions of the said RMO. 3.7. Once these unredeemed DCs are included in the GCLs of the concerned offices, these outstanding delinquent accounts shall be included in the footnotes to the financial statements until the same are fully settled by the taxpayers or written-off from the GCL, pursuant to the provisions of RMO No. 11-2014. C. Filing of Criminal Charges against Delinquent Taxpayers 1. In case the delinquent taxpayer failed to redeem any DC within five (5) days from receipt of the Notice of Dishonor from the concerned RDO, the enforcement of collection thru administrative summary remedies shall be strictly undertaken by the RDO. In case the taxpayer falls under the jurisdiction of a district office where there is an AMT in the Regional Collection Division (RCD), the case docket must be immediately transmitted by the district office to the latter immediately after the lapse of the said 5-day grace period for the conduct of necessary enforcement actions. In case the concerned taxpayer failed to settle his delinquent account due to issuance of DC within the prescribed period, appropriate legal action must be immediately instituted against the said delinquent taxpayer by the RLD for violation of the Tax Code, and/or Batas Pambansa (BP) Blg. 22, otherwise known as the Anti-Bouncing Check Law, or Article 315 of the Revised Penal Code, as the case may be. Notwithstanding the referral of the case to the RLD, the concerned RDO or RCD must continue to undertake necessary enforcement actions thru summary remedies against delinquent taxpayers. 2. Taxpayers who are determined to be habitual offenders shall likewise be subjected to immediate legal action. For this purpose, the concerned RDOs and RCDs must submit to the RLDs a list of taxpayers who are considered as habitual offenders of the said law, for the filing of the appropriate civil and criminal action due to violation of the Tax Code, BP Blg. 22, or Article 315 of the Revised Penal Code. cDHAES For this purpose, a habitual offender refers to a person who makes or draws and issues any check to apply on its/his/her tax liability that is subsequently dishonored by the drawee-bank for insufficiency of funds or credit, or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, or issuance of check/s from closed account/s with a frequency of at least three (3) times. Likewise, a person who issues defective checks ( e.g., stale checks, post-dated checks, etc.) with a frequency of at least three (3) times is also considered as habitual offender, and that criminal and civil liability must be filed immediately against him/her. Habitual offender shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine not less than Ten Thousand Pesos (Php10,000) and suffer imprisonment of not less than 1 year but not more than ten (10) years. Moreover, for taxpayers who are not considered habitual offenders, the guidelines and procedures prescribed under Revenue Memorandum Order No. 25-2001 dated October 16, 2001 must be strictly observed by all the concerned offices with a reminder that only cash or cashier's/manager's check shall be accepted to redeem any dishonored check. 3. The RLD shall immediately evaluate all the recommendations referred to by the RDO and the concerned RCDs. The concerned RDOs and RCDs shall be officially informed by the RLD of the results of the Evaluation within fifteen (15) days from receipt of the case docket. 4. The RLD shall submit monthly status/progress reports on the cases referred for legal action and/or cases already filed in court to the concerned RDOs and RCDs, copy punished the Regional Director and Assistant Commissioner-Collection Service within fifteen (15) days of the following month. 5. In order to forestall the continued incidences of DCs, the concerned taxpayers with recorded DC/s must be required by all the concerned RDOs to electronically file their respective tax returns and pay the taxes due thereon either thru the Bureau's Electronic Filing and Payment System (eFPS) or Electronic BIR Forms (eBIR Forms). In cases where the aforesaid electronic facilities of the Bureau have been declared to be temporarily unavailable thru the advisory issued by the Information System Group (ISG), the payments of the taxes due by the concerned taxpayers shall only be made in "cash" or "manager's checks" or "cashier's checks" and not thru personal or company checks. cTDaEH Strict compliance herewith is hereby enjoined. (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue