Processing of Annual Inventory Lists

January 12, 1984 REVENUE MEMORANDUM ORDER NO. 01-84 SUBJECT : Processing of Annual Inventory Lists TO : All Internal Revenue Officers and Others Concerned 1. Background It has been observed that inventories filed annually by taxpayers under Section 13 of Revenue Regulations No. V-1 otherwise known as the Bookkeeping Regulations are not systematically compiled for reference in the audit and investigation of tax returns. In order that the inventory lists can be effectively utilized for tax audit and investigation purposes, the following guidelines are hereby promulgated. cd 2. Revenue District Offices 2.1 Upon receipt of the inventories filed by taxpayers, the revenue district officer or other duly authorized revenue officer shall compile and classify the same in accordance with the format shown in Annex A and Annex B hereto showing among others the following information: 2.1/1 Type of business and/or industry according to the following broad categories - * Retail * Wholesale * Manufacturing 2.1/2 Amount of inventory 2.1/3 Method of inventory valuation and costing 2.2 All inventory lists should be systematically filed in the revenue district office and made readily accessible to examiners for reference and, if feasible, the duplicate thereof should be attached to the income tax returns for which a letter of authority has been issued. If the inventory was filed by the taxpayer whose internal revenue tax liability is subject to investigation by any of the National Office Audit Division, the duplicate thereof should be immediately transmitted to the Revenue Service Chief, Sector Operations Office. 2.3 Duly accomplished Annexes A and B shall be transmitted immediately to the Revenue Service, Sector Operations Office, for further evaluation and processing for purposes of computerization. cdt 3. Audit and Verification The inventory costing and valuation method used should be thoroughly and adequately test-checked simultaneously with the audit and investigation of the corresponding income tax returns of the taxpayers. The objective of test-checking is to see to it that the inventory costing and valuation method used is accurately and consistently applied. The revenue examiner should also perform adequate audit procedures to insure that the inventories are not utilized by taxpayers for the purpose of understating their gross income and should specifically state in his memorandum report what specific audit procedures were actually undertaken by him with respect to the inventories. 4. Effectivity This Revenue Memorandum Order shall be effective immediately. (SGD.) RUBEN B. ANCHETA Acting Commissioner