Amendment to Field Circular No. V-157

June 27, 1964 REVENUE MEMORANDUM CIRCULAR NO. 22-64 SUBJECT : Amendment to Field Circular No. V-157 TO : All Internal Revenue Officers and Others Concerned In the post audit made by this Office of the assignment and reporting of income tax returns and cases in Regional Offices Nos. 4, 5 and 6, it was discovered that the degree of control in the processing and assignment of income tax returns and the review and recording for statistical purposes of field audit reports had many loopholes and defects. Considering further that approximately 70% of the income tax collections are collected in the said regional offices, the need for a tighter control and closer supervision in the assignment, investigation and reporting of income tax returns becomes necessary. In view of the foregoing, paragraph 3 (issuance of authority to investigate) and 10 (confirmation of investigation) of Field Circular No. V-157 are hereby amended to read as follows: 1. Paragraph 3.d. of the above-mentioned Field Circular is hereby amended to read as follows: "3.d. Letters of authority to investigate shall be issued only by the following officials: (1) The Chief Revenue Officer of Inspection Districts for the fieldmen under his jurisdiction. (2) The Regional Director for the fieldmen of the Alcohol & Tobacco Tax Branch. (3) The Revenue Operations Head (Assessment) for the fieldmen of the divisions under his jurisdiction except the fieldmen of the Investigation Division. (4) The Commissioner of Internal Revenue for fieldmen of the Investigation Branch and the Investigation Division upon recommendation by the Regional Director in the case of the former and the Revenue Operations Head (Assessment) in the case of the latter and the fieldmen detailed in the International Operations Staff. (5) For the fieldmen of inspection districts under the jurisdiction of Regional Offices Nos. 4, 5, and 6, the following procedure should be followed in the issuance of the authorities to investigate for income tax purposes: (a) Inspection District Nos. 16 (Bulacan) and 17 (Cavite) of Regional Office No. 4 and Inspection District Nos. 26 (Occidental Mindoro) and 27 (Palawan) of Regional Office No. 6 are not covered by the procedure to be promulgated under this sub-paragraph. The procedure outlined in sub-paragraph 3-d-1 should be followed in the above-mentioned districts. cdt (b) In accordance with previous instructions all duplicates of income tax returns duly classified into classes A, B, C and Office Audit are to be under the custody of the Income & Business Tax Branch until such time as they are released for investigation upon notice from the National Office. (c) As soon as notice is received from the National Office that investigation may be resumed, the duplicate copies of the returns should be forwarded to the Chief Revenue Officers of Inspection District Nos. 18, 19, 20 and 21 of Regional Office No. 4; Inspection District Nos. 22, 23 and 24 of Regional Office No. 5; and Inspection District No. 25 of Regional Office No. 6. The said returns should be duly listed and classified before being forwarded. In order to prevent the clogging of the returns in the hands of examiners, the Chief of the Income & Business Tax Branch must see to it that the number of returns forwarded to the Chief Revenue Officers for distribution must not exceed an average of ten (10) for each examiner. (d) The Chief Revenue Officer should acknowledge the receipt of the income tax returns and such acknowledgment should be forwarded to the Chief, Income & Business Tax Branch, before the returns are distributed. (e) In order to have an effective and fair distribution of income tax returns, a Committee is hereby created in each of the inspection districts concerned with the Chief Revenue Officer as Chairman, the Chief, Income & Business Tax Branch and a representative of the National Office as members. This Committee is charged with the distribution of the returns in accordance with the following procedure: The number of examiners divided into Classes A, B, and C for each inspection district as well as the number of returns available for distribution to each class should be determined. From the total number of returns, the quantity that can be given to each individual examiner depending on the class should be computed, seeing to it that each examiner for each class shall have an equal number of income tax returns. Thus, if there are twenty (20) class A examiners in the inspection district, 200 class A returns should be forwarded by the Income & Business Tax Branch to the Chief Revenue Officer for distribution to the Class A examiners at ten (10) returns each. The returns to be forwarded by the Chief, Income & Business Tax Branch should always be exact to the number of examiners and at no time should there be an excess of undistributed income tax returns in the hands of the Chief Revenue Officer. If the distribution at the rate of ten (10) returns each can no longer be followed because of the lack of available returns, the Chief of the Income & Business Tax Branch shall compute to the nearest estimate the number of returns that should be forwarded to the Chief Revenue Officer. cdpr The returns for distribution should be bundled into as many examiners as there are in the class. A listing of the returns bundled should be made showing the name and the assessment number of the return which list should be attached to the bundle of returns and placed in a folder without identification. The Chief Revenue Officer and the other members of the Committee shall then call the Group Supervisors who will be asked to pick a folder for the Class A examiners in his group and the latter should be allowed to pick as many bundles as there are Class A examiners in his group. Upon receipt of the folder, the Group Supervisor should acknowledge the receipt of the returns by signing the four copies of the list attached to the return. The quadruplicate should be detached by the Group Supervisor as his file copy and the remaining three copies should be returned to the Chief Revenue Officer. The Chief Revenue Officer should keep the triplicate copy of the list and the original and duplicate should be given to the Chief, Income & Business Tax Branch who should keep the original thereof and the duplicate copy should be given to the representative of the National Office for the Commissioner' s file. (f) The Group Supervisor should then record the returns in his book and make the necessary assignment to his Class A examiners. The return assigned should be forwarded to the Chief Revenue Officer who will prepare the corresponding authority to investigate and the examination record card, per sample attached (Annexes A and B). The authority to investigate should be carefully prepared and erasures should be avoided as much as possible particularly the name and address of the taxpayer to be investigated. A new one should be prepared if it becomes necessary to make erasures in the authority. The period to be covered by the authority to investigate should be definite and phrases "last five years", 1959 and up" or "1962 and previous years" should be avoided in order that confusion in the examination may be eliminated. prcd In the preparation of the authority to investigate, the Chief Revenue Officer should not put the date. The date of the authority will be placed by the Income & Business Tax Branch upon release from the said branch. (g) In order to insure an effective control of all authorities to investigate, all Chief Revenue Officers concerned are hereby instructed to forward all copies of authorities to investigate which have been cancelled, to the Income & Business Tax Branch. The cancelled authorities to investigate must likewise be recorded in the Authority Register and kept in a separate file by the Chief of the Income & Business Tax Branch. (h) The return, the authority to investigate and the examination record card should be forwarded to the Income & Business Tax Branch after signature by the Chief Revenue Officer. The Chief of the Income & Business Tax Branch should record in the Authority Register (Annex C) the name of the taxpayer, the address, the authority number, to whom assigned, after which the same should be forwarded to the Regional Director for his signature in the authority to investigate. For a proper recording of authorities to investigate, the Regional Director should not sign the authority unless he is sure that it has been processed in the Income & Business Tax Branch. (i) The Regional Director after signing the authority to investigate should return the papers to the Income & Business Tax Branch for further action on the papers. The authority should be dated in the branch after which the Regional Director's copy should be detached for file. The date of the authority and the date of release should then be recorded in the Authority Register. After the entries have been made in the register, the papers should be forwarded to the Chief Revenue Officer. LLpr (j) The Chief Revenue Officer upon receipt of the duly signed authority to investigate should immediately forward the papers to the Group Supervisor concerned after detaching his copy of the authority. The latter should immediately transmit the papers to the examiner to whom the return has been assigned. (k) The examiner should then proceed with the investigation and he should be governed by the rules and regulations with respect to the auditing techniques to be employed, the period within which to serve the authority to investigate and the period within which to finish his investigation and submit his report thereon which are covered by separate memorandum orders. (l) When the report is submitted to the Group Supervisor, he should review it thoroughly to see to it that the report complies with the requirements of the Manual on Audit and Investigation Procedure with respect to notices to taxpayers, informal conference, etc. If he believes that the report is in order the same should be forwarded to the Chief Revenue Officer who should likewise review it and if satisfied, same should be forwarded to the Income & Business Tax Branch for processing. The Group Supervisor and Chief Revenue Officer should not keep the report in their possession for more than sixty (60) days. (m) After processing and review of the report, the letter of demand should be prepared and forwarded to the Regional Director for signature and approval of the field audit report. In case the report contains no discrepancy or deficiency assessment, the report should nevertheless be forwarded to the Regional Director for approval of the report. (n) As soon as the Regional Director has signed the letter of demand and/or approved the report, the report should be forwarded to the Income & Business Tax Branch for recording in the Authority Register the following information: a. Date of submission of the report b. Net income per return c. Net income after investigation d. Tax due per return e. Deficiency tax per investigation f. Date of release of letter of demand In case the deficiency assessment in the report exceeds P10,000.00, no entry should be made of the above-enumerated information in the Register. Entry should, however, be made in the "remarks" column that the docket was forwarded to the National Office. The examination record card should likewise be filled up in the Income & Business Tax Branch in accordance with the information required in the said card after which the copy for the branch should be detached. The docket of the case should then be forwarded to the Administrative Branch for release of the letter of demand or for file as the case may be. The Chief of the Income & Business Tax Branch should likewise use the approved report as basis of entries in Form 40.00. prll (o) To have a close check of the authorities and returns investigated, the Income & Business Tax Branch should utilize the "D" copy of the examination record card. The cards should be filed alphabetically so that at any time information is needed regarding the taxpayer being investigated it can be easily secured from the card instead of going over the authority register. Once a report has been submitted the card should be pulled out from the outstanding file and placed in a separate file called reported file. When the report has been approved and the letter of demand is released or the docket is transmitted to the Administrative Branch for file since there is no deficiency tax due, the card should be removed from the reported file and placed in the closed file. The "C" copy of the card detached in the Income & Business Tax Branch should be kept in the said branch to be forwarded later to the Accounting Machines Division for punching of statistical data after which the information card should be returned to the branch. (p) The same procedure of distribution should be followed in the case of Classes B and C returns. (q) The branch should assign a clerk for each revenue inspection district under the jurisdiction of the Regional Office to take care of the Authority Register, the file copies of the authority to investigate, and the examination record card file." 2. Paragraph 10 of Field Circular No. V-157 is hereby amended by adding the following to the said paragraph. "As soon as the Group Supervisor has received the filed audit report from the examiner he should request from the Chief Revenue Officer the letter of confirmation which should bear the same number as the number of the Authority to investigate. The confirmation letter should be prepared for the signature of the Chief Revenue Officer." 3. In view of the new policy of investigating returns on a line of business basis insofar as big regional offices are concerned, the Chief of the Income & Business Tax Branch of the three regions should not include in the batch of returns forwarded to Chief Revenue Officers, the duplicates of income tax returns of businesses which have been selected for special investigation. The lines of businesses which have been selected for special investigation are the banks, insurance companies, exporters, manufacturers, textile dealers, sub-division owners, and such other lines of businesses as may be determined by the National Officer or as may be recommended by the Regional Office concerned. cdta Returns of taxpayers engaged in interrelated industries of three or more should not be included in the distribution. These type of returns which should be classified as "Class A-1" are to be assigned to special teams of examiners in the region for package investigation. 4. In order to avoid confusion in the investigation, all authorities to investigate pending in the hands of examiners which have been served but not yet reported or these which have not yet been served should be surrendered to the Chief Revenue Officer. The Chief Revenue Officer should prepare a new authority to the same examiner using the new form (Annex A). Care should be observed, however, that the examiners surrendering the authority to investigate who will be issued the revalidated authority are still assigned in the district where the taxpayer is resident. In case the two are in conflict, the Regional Director is given the discretion to reassign the return to the inspection district who has jurisdiction over the taxpayer. Dockets assigned to examiners should also be issued the corresponding authority to investigate and should be processed in the same manner as original investigation. 5. For purposes of determining the district which has jurisdiction over the taxpayer, the place of business of the taxpayer as registered in the Securities & Exchange Commission and where the books of accounts are kept should be the determining factor. If the books of accounts are kept other than in the main office, the place of the former should be the basis of the issuance of the authority. If the factory or branch is located in other inspection districts other than the district where the main office of the taxpayer is located, the jurisdiction for investigation purposes remains with the district where the main office is and the books of accounts are kept. Subsidiary books and factory records kept in the branches or in factories does not change the jurisdiction of the taxpayer if the factory or the branch is not the main office of the business or the place where the books of accounts are kept. Books of accounts kept in the office of the accountant or the business agent is a violation of the bookkeeping regulations and the address of the accountant or business agent should not be made the basis of determining the inspection district who has jurisdiction over the taxpayer. 6. This Revenue Memorandum Circular supersedes all orders, circulars, instructions or portions thereof, which are inconsistent herewith. cdti 7. This Revenue Memorandum Circular shall take effect upon approval. (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue APPROVED: (SGD.) RUFINO C. HECHANOVA Secretary of Finance Enclosures: Annexes A, B and C Republic of the Philippines Department of Finance BUREAU OF INTERNAL REVENUE Regional Office No. ___ Office of the Chief Revenue Officer ___ AUTHORITY NO. ___________ ____________________, 196___ _____________________ _____________________ Sir/Madam/Gentlemen : The bearer hereof, Revenue Examiner __________________ of this Office, whose signature appears hereunder, is authorized to examine your books of accounts and other accounting records for income tax purposes for the taxable year ending ____________, 19___. The examiner is provided with an identification card issued by this Office, which shall be presented to you upon request. It is requested that all facilities be afforded the examiner in order that the examination can be expedited. cdti A letter of confirmation on the result of the investigation made hereon will be sent to you within thirty (30) days upon termination of the investigation, instead of your books of accounts and/or other records being signed by the investigating examiner. Should you fail to receive such confirmation, you are requested to inform this Office in writing immediately. Very truly yours, _______________________ Regional Director Recommended by: ______________________ _________________________ Chief Revenue Officer Examiner & Code No. ____ IMPORTANT: In any communication relative to this subject matter, please address it to the Chief Revenue Officer, or call up Telephone No. _______. LETTER OF CONFIRMATION NO. ____ _________________________, 196___ _____________________ _____________________ Sir/Madam/Gentlemen : With reference to our letter of authority No. _____________ dated ___________________, please be informed that the investigation thereof has been terminated and the corresponding report for the taxable year ending _____________ has been submitted to this Office by Examiner __________________________. The findings as reported are subject to review and final approval by the proper officials of this Bureau and final decision thereon will be communicated to you. Very truly yours, _____________________ Chief Revenue Officer IMPORTANT: This letter of confirmation should be pasted on the inside cover of the ledger for the year(s) investigated. INSTRUCTIONS ON THE USE OF THE EXAMINATION CARD (BIR FORM NO. ______ ) 1. The examination card should be prepared in quadruplicate, distributed as follows: A Original Income & Business Tax Branch copy (permanent file) B Duplicate CRO's copy C Triplicate Date Processing Counter's copy D Quadruplicate Income & Business Tax Branch copy (docket in process file). 2. In the preparation of the authority to investigate by the Chief Revenue Officer should likewise prepare for each return a set of the examination record, filling up data 1 to 15. llcd 3. Upon receipt of the authority to investigate, the income tax return and the examination record in the Income & Business Tax Branch, the "D" card should be detached and filed alphabetically in the "Assigned cases" file. 4. When the authority has been signed by the Regional Director and released by the Income & Business Tax Branch to the Chief Revenue Officer, the latter should detach and retain for his file the "B" card before forwarding the papers to the Group Supervisor. They ("B" cards) should be filed alphabetically under the respective group supervisor's names. This will show at any given time the number of pending cases of each group supervisor. 5. The Group Supervisor, in turn, upon receipt of the papers should detach the "C" card before transmitting the authority and the return to the examiner. The "C" card retained with the Group Supervisor should be filed alphabetically under each examiner's name. This will show the pending cases of any examiner at any given time and serve as a check against his record book. 6. After completion of the examination and upon reporting the results of the investigation, the examining officer fills up data 16, 17 and 19 in the "A" card attached to the return and submits all papers to the Group Supervisor. 7. The Group Supervisor using the "A" card as basis fills up data 16, 17 and 19 in the "C card which he temporarily utilized for control purposes, and attaches the same to the docket. He forwards all papers to the Chief Revenue Officer after review. No card is to be left with the Group Supervisor. 8. The Chief Revenue Officer completes entries in his "B" card using as basis the "A" and "C" cards attached to the docket. For his own purposes, he may fill up data 20 (partially) and 21 based on the examiner's report of investigation. He then files his completed "B" cards in "reported cases" file. The other papers are then forwarded to the Income and Business Tax Branch. 9. Upon receipt of the docket for review by the Income & Business Tax Branch, the corresponding "D" card in the branch should be transferred from the "assigned cases" file to "reported cases" file. The "reported cases" file will show at any given time the number of pending review cases in the Income & Business Tax Branch. After review, the reviewer fills up data 18. 10. Upon receipt by the Income & Business Tax Branch of the docket from the Regional Director who has either signed the letter of demand and approved the report if there is deficiency tax or approved the report if there is no deficiency tax, data 20 to 23 of the "A" and "C" cards should be filled up in the branch. "D" card is pulled out from the "reported cases" file and discarded. LibLex 11. "A" card is retained in the Income & Business Tax Branch under "permanent closed file" for future reference. The "C" cards which are to be compiled in the branch should later on be forwarded to the Data Processing Center for statistical recording.