Pre-Audit by the Regional Offices of 2005 Tax Returns Not Selected for Issuance of Letter of Authority/Audit Notice/Tax Verification Notice

October 27, 2006 REVENUE MEMORANDUM CIRCULAR NO. 67-06 SUBJECT : Pre-Audit by the Regional Offices of 2005 Tax Returns Not Selected for Issuance of Letter of Authority/Audit Notice/Tax Verification Notice under Revenue Memorandum Order (RMO) No. 1 1-2006, as Amended by RMO No. 1 8-2006 TO : All Regional Directors, Revenue District Officers, Regional Division Chiefs, Revenue Officers and Others Concerned In order to ensure strict compliance of taxpayers with internal revenue laws and regulations in relation to the requisites of deductibility of certain expenses and payment of correct income/percentage tax, the following 2005 tax returns not selected for issuance of Letter of Authority/Audit Notice/Tax Verification Notice under RMO No. 11-2006, as amended by RMO No. 18-2006, which prescribes the 2006 Audit Program for Revenue District Offices (RDOs), shall be pre-audited by the concerned office assigned by the Regional Director: 1. Percentage tax returns; 2. Tax returns of taxpayers claiming the following deductions from gross income: 2.1 Interest expense; 2.2 Contributions; and 2.3 Representation expense; 3. Corporate income tax returns on the applicability of the minimum corporate income tax (MCIT) pursuant to Sec. 27(E) and Section 28(A)(2) of the National Internal Revenue Code of 1997 (Tax Code), as implemented by Revenue Regulations (RR) No. 9-98 and clarified through Revenue Memorandum Circular No. 4-2003; and 4. Tax returns with claimed creditable withholding taxes against tax due to determine correct substantiation of claims through the certificates attached to the returns. The following guidelines and procedures shall be observed in the pre-audit of the abovementioned tax returns: 1. The Regional Director shall issue a Tax Verification Notice (TVN) only if, upon pre-audit of the concerned office, it is determined that there is a discrepancy in the tax payment. No TVNs shall be issued by the Regional Director without the attached duplicate copy of the tax returns. DCASEc 2. The pre-audit shall not be construed as a regular audit/investigation since the Revenue Officer shall limit his verification on the mathematical computation of income and/or percentage tax due, creditable withholding tax claimed per income tax return, as well as percentage tax return, and compliance with RR Nos. 9-98, 13-98, 13-2000 and 10-2002 as to the limitation for deductibility of expense items as reflected/claimed on the tax returns filed. No fieldwork in relation to the pre-audit of tax returns prescribed in this Order shall be allowed. 3. The assigned Revenue Officer shall perform the following: 3.1 Prepare the memorandum report; 3.2 Inform the taxpayer in writing of the discrepancy in his/its tax payment; 3.3 Require the taxpayer to settle the said deficiency tax within fifteen (15) days from receipt of notice; 3.4 In case the taxpayer agrees to pay the deficiency tax, BIR Form No. 0605 (Payment Form) shall be utilized for this purpose and a copy of the proof of payment shall be attached to the report; 3.5 If the taxpayer fails to respond to the notice or does not pay the deficiency tax, prepare a report recommending for the issuance of a final assessment notice in relation to Sec. 228 of the 1997 Tax Code; and 3.6 Transmit the report of verification with the corresponding attachments to the Office of the Regional Director for review and issuance of Final Assessment Notice. 4. Reporting requirements to be submitted on or before the 10th day of the month: Name of Report Office/ Distribution of Report Person Responsible 4.1 Monthly Report on Tax Regional Director a. Office of the Verification Notices Commissioner Issued (Annex A) b. Office of the DCIR- OG (Assessment Service) 4.2 Monthly Report of Cases Concerned office a. Office of the Covered by Tax Assigned by the Commissioner Verification Notices on Regional Director b. Office of the DCIR- the Pre-Audit of 2005 OG (Assessment Tax Returns (Annex B) Service) c. Office of the Regional Director 4.3 Monthly Report on Final Office of the a. Office of the Assessment Notices Regional Director Commissioner (FANs) Issued and b. Office of the DCIR- Collections Arising from OG (Assessment the Pre-Audit of 2005 Service) Tax Returns (Annex C) 5. The conduct of pre-audit of tax returns must be accomplished and reported on or before December 15, 2006. ESDHCa The herein prescribed pre-audit of selected tax returns to check mathematical accuracy of the figures may be adopted by the offices under the Large Taxpayers Service in appropriate cases. This Circular shall take effect immediately and shall be given as wide a publicity as possible. (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue ANNEX A Monthly Report on Tax Verification Notices ANNEX B Monthly Report of Cases Covered by Tax Verification Notices ANNEX C Monthly Report on Financial Assessment Notices (FANs)