Reorganization of the Special Investigation Division

August 26, 1968 REVENUE ADMINISTRATIVE ORDER NO. 02-68 SUBJECT : Reorganization of the Special Investigation Division TO : All Internal Revenue Officers and Others Concerned PURPOSE In line with the policy to place emphasis on the criminal prosecution of taxpayers who willfully violate internal revenue laws and regulations in order to serve as a strong deterrent in the commission of all forms of tax evasion; provide a forceful approach to hasten the degree of voluntary compliance; and pursuant to the provisions of Section 79(b) of the Revised Administrative Code, the Special Investigation Division is hereby reorganized into two divisions both of which shall be under the Special Operations Department. prll The National Tax Fraud Unit is hereby constituted into a division to be known as the Fraud Investigation Division and the other units remaining of the said division are hereby constituted into another division to be known as the Audit Division. FRAUD INVESTIGATION DIVISION I. ORGANIZATION : A. Organizational Structure The Fraud Investigation Division shall be headed by a Chief of Division who shall be responsible to carry out the duties and functions thereof. He shall be assisted by an Assistant Chief of Division who shall also act in his place in case of absence or his inability to perform his duties and functions. The division shall be divided into the following sections: 1. Investigation Section This section shall be the field force of the division. It shall be responsible for conducting actual fraud investigation in the field whether the investigation are initiated by the division itself or they may have been referred to the division under the Fraud Referral Program. 2. Retrieval, Analysis and Evaluation Section This section shall be responsible in evaluating and deciding whether a case referred to the division is really fraudulent before actual field investigation can be conducted by the Investigation Section. It shall likewise be responsible in the review of the reports of the special agents in the Investigation Section to insure the quality and completeness of the work done. It shall further be responsible for maintaining a system whereby information can be retrieved and made the basis of investigation for tax fraud. 3. Administrative Section This section shall provide administrative support to the other two sections of the division. It shall be responsible for providing the clerical force, keeping records, compilation of investigation manuals and techniques, keeping investigation equipment in good working order, and planning and recommending training programs for special agents. B. Records and Equipment All records, documents, papers, pending cases and investigations and other evidences on all tax fraud cases appertaining to the National Tax Fraud Unit which are on file with the Records Section of the Special Investigation Division shall be segregated and turned over to the Fraud Investigation Division including those which may be utilized as lead information in prospective tax cases such as the records being processed on doctors, race horse owners, jockeys and pelotaris and the records in the Voluntary Tax Compliance Unit of the Special Investigation Division. II. FUNCTIONS AND RESPONSIBILITIES : The Fraud Investigation Division shall administer the fraud investigation program of the bureau through the enforcement of the penal sanctions of the National Internal Revenue Code and related statutes by gathering and developing information concerning alleged criminal violations thereof; formulate and recommend policies and plans for the effective conduct of tax fraud investigations; develop, evaluate and prepare manuals on standard operating procedures, methods and techniques in the investigation of tax fraud cases for use and/or guidance of fieldmen conducting tax fraud investigation work; evaluate allegations and indications of violations of the National Internal Revenue Code and related statutes to determine investigations to be undertaken; conduct investigations of all suspected violators of the Tax Code and related statutes; develop cases of tax violations for criminal prosecution; undertake surveillance and undercover work; review and analyze reports of suspected tax fraud cases referred by examiners to determine whether criminal prosecution is warranted or not; conduct continuing analysis and appraisal of actions recommended or taken in tax fraud cases to improve the determination and apprehension of such cases; gather, consolidate and interpret intelligence information relating to tax fraud matters from all available sources; develop concentrated training guides and techniques and information relating to tax fraud matters from all available sources; develop concentrated training guides and techniques and investigation manuals for its personnel relating to fraud investigation; and keep custody of all investigative equipments. aisadc The division shall assist in special inquiries, drives and compliance programs in the normal enforcement process by providing investigative resources to other government agencies upon request; assist Trial Attorneys and Legal Officers of the Legal Department of the Bureau and fiscals and other prosecutors of the Department of Justice in the processing of tax fraud cases, including the preparation for trial of these cases. III. JURISDICTION : To avoid jurisdictional conflict and fix the responsibility for planning and directing a national tax fraud enforcement program, the Fraud Investigation Division shall have nationwide jurisdiction in the investigation and prosecution of all kinds of criminal tax fraud cases initiated and/or developed by it and all tax cases referred to it from various sources especially where a prima facie case or evidence of fraud has been established. In all instances, the determination whether a fraud case is civil or criminal shall be the responsibility of the Fraud Investigation Division . Where a fraud case is initiated by the Regional Office, the investigation for assessment purposes shall be the responsibility of the region concerned. Field personnel from the Fraud Investigation Division shall, however, collaborate with the regional examiners in conducting the examination of the criminal aspect of the case. Where a fraud case is initiated by other divisions in the National Office performing examination work, the investigation for assessment purposes shall be the responsibility of the division concerned. Field personnel from the Fraud Investigation Division shall, however, collaborate with the examiners from the division, in conducting the examination of the criminal aspect of the case. If the case was initiated by the Fraud Investigation Division on its own initiative but the original case and its original investigation is under the jurisdiction of regional offices or the other investigating divisions in the National Office, the investigation must be conducted jointly with the assessment examiners concerned. The credit for the prosecution of the taxpayer shall be given to the examiner who originally initiated the fraud case and the credit for the assessment shall be for the region or division in the National Office as the case may be. It shall be the policy of this Office that in all joint investigations, priority should be given to the criminal aspect of the case before the civil aspect is finalized. It shall also be the policy of this Office that any and all tax fraud cases coming to the knowledge of bureau personnel should be immediately referred to the Fraud Investigation Division. Any personnel of the bureau who is in possession of information or data which can lead to the criminal prosecution of a taxpayer but refrains from bringing said case to the attention of the officials concerned shall be administratively dealt with. The jurisdiction of the Fraud Investigation Division shall be limited to the criminal aspect of the case. In all cases where the division decides not to continue with the criminal prosecution, the case should be returned to the region or division who has jurisdiction of the case, for investigation of the civil liability. AUDIT DIVISION I. ORGANIZATION : A. Organizational Structure : The Audit Division shall be headed by a Chief of Division who shall be assisted by an Assistant Chief of Division who shall also act in his place in case of absence or inability to perform his duties and functions. The Division shall be divided into the following sections: 1. Audit Section This section shall be the field force of the division. It shall be responsible for conducting actual investigation of tax cases under the jurisdiction of the Audit Division. LLpr 2. Analysis and Evaluation Section This section shall be responsible in determining cases to be investigated by the Audit Section. It shall also be responsible in the review of field audit reports submitted by the examiners of the Audit Section. 3. Administrative Section This section shall provide administrative support to the other two sections of the Division. It shall be responsible for providing the clerical force, keeping records, compiling of investigation manuals and techniques; and planning and recommending audit programs for tax cases falling within the jurisdiction of the division. B. Records and Equipment All records, documents, papers, pending cases and investigations other than those which pertain to tax fraud and which are on file in the Special Investigation Division shall be segregated and turned over to the Audit Division including those papers and other correspondence which may be used in investigating the tax cases falling under the latter. II. FUNCTIONS AND RESPONSIBILITIES : The Audit Division shall administer and enforce the provisions of the National Internal Revenue Code and related statutes insofar as it affects tax cases falling within the jurisdiction of the division except the criminal prosecution of taxpayers which should be given to the Fraud Investigation Division. III. JURISDICTION : To avoid jurisdictional conflict and to fix the responsibilities for planning and directing the audit program of the Audit Division, the division shall have jurisdiction over the following cases: A. Investigation of interrelated businesses or industries where the industries or businesses interrelated are located in more than one region. The interrelated industries or businesses under this paragraph shall be held to mean two or more entities or corporations owned by the same interests and should not be held to mean that stockholders of the two corporations should be considered as an interrelated industry by themselves and therefore subject to investigation. B. Investigation of transfer taxes, wherever field where properties are located in Regional Offices Nos. 6, 7, 8 and other regions outside of the three preceding regional offices, where not less than 30% of the gross estate is located in other regions. However, if the gross estate exceed P500,000, wherever the properties are located, the jurisdiction shall be with the Audit Division. C. Large corporations or partnerships wherein subsidiaries and/or related companies are located in various regions other than Regions 6, 7 and 8. D. Assessment examinations which are classified as sensitive or policy cases by the Commissioner or Deputy Commissioner. E. Complex issue cases involving special business operations which require special technical knowledge. F. Cases in which a Regional Director with the approval of the Commissioner requests that the tax returns of a taxpayer in his region be examined by the Audit Division. G. National Security Cases Any examination which may involve national security are to be assigned to the Audit Division. In conducting the examination or reinvestigation in regional offices, the examiners of the Audit Division should request the assistance of regional assessment examiners when conducting inquiries or examination within the geographical areas of the respective regions. MISCELLANEOUS PROVISIONS Within thirty (30) days from the approval of this Revenue Administrative Order, the Chief of the Special Investigation Division, shall implement the reorganization of the division and give the papers, equipment, and other items belonging to the National Tax Fraud Unit to the Fraud Investigation Division and those which are remaining and will form part of the Audit Division shall be given to the Audit Division. Equipment which cannot be directly allocated to any of the two new divisions should be divided accordingly between the two. REPEALING CLAUSE Revenue Administrative Orders, Revenue Memorandum Circulars, Revenue Memorandum Orders and Revenue Special Orders and/or portions thereof which are inconsistent with the provisions of this Revenue Administrative Order are hereby repealed or revoked accordingly. EFFECTIVITY This order shall take effect upon approval. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue APPROVED: (SGD.) EDUARDO Z. ROMUALDEZ Secretary of Finance