Prescribing an Office Audit Program in the Assessment Division of Revenue Regional Offices

April 28, 2009 REVENUE MEMORANDUM ORDER NO. 013-09 SUBJECT : Prescribing an Office Audit Program in the Assessment Division of Revenue Regional Offices TO : All Regional Directors, Revenue District Officers, Chiefs of the Assessment Divisions of Regional Offices, Other Revenue Officers and Others Concerned I. BACKGROUND The Annual Audit Program for Revenue District Offices (RDOs) is issued to enhance voluntary compliance of taxpayers through quality audit of tax returns based on audit selection criteria designed to uncover taxpayers who have not been compliant or those with low compliance in the payment of their tax liabilities. However, this program is not enough to maximize enforcement activities due to our limited manpower resources in the district offices and due to the multi-tasking assignments of Revenue Officers-Assessment (RO-Ass). Hence, it has been observed that the low compliance and perceived errors, as well as other violations, of taxpayers falling under the small and medium business categories, have not been addressed and corrected. Moreover, there is a need to determine initially the tax gap in absolute amount from these sectors. II. OBJECTIVES 1. To improve the voluntary compliance of individual and corporate taxpayers belonging to the small and medium categories; 2. To generate additional revenues from the office audit of the aforementioned taxpayers; 3. To identify particular industries and taxpayers groups with substantial violations and tax evasion schemes leading to understatement of tax liabilities; and 4. To utilize data from office audit for possible taxpayer profiling and benchmarking activities. III. COVERAGE The Office Audit Program shall cover the audit/investigation of the following tax returns: 1. 2007 tax returns not selected for issuance of Letter of Authority (LA) or Tax Verification Notice (TVN) under RMO No. 20-2008, as amended by RMO No. 21-2008; and 2. Tax returns for taxable year 2008 not covered by the 2009 Annual Audit Program for RDOs to be prescribed in a separate revenue issuance. cAaETS Exclusions: 1. Aside from the tax returns selected by the Revenue District Officers under the Annual Audit Program, taxpayers covered by the Taxpayer Account Management Program (TAMP) of the RDOs shall not be referred to the Assessment Division for Office Audit. 2. Taxpayers whose principal place of business are located in the island districts under the jurisdiction of the Regional Office. IV. AUDIT POLICIES AND GUIDELINES 1. Upon the approval of this Order, the concerned Revenue District Officers shall immediately transmit all 2007 tax returns not selected for issuance of LAs/TVNs to the Office of Regional Director. 2. The Regional Director, in consultation with the Chief, Assessment Division and concerned Revenue District Officers shall select taxpayers for office audit and direct the Chief of the Assessment Division to prepare the List of Taxpayers Selected for Office Audit prescribed under Annex "A" hereof and the corresponding LAs. 3. Office audit shall be conducted without field investigation and only within the premises of the Assessment Division by RO-Ass of the said office. 4. The Regional Director shall see to it that taxpayers included in the list are not covered by the 2008 Audit Program of the RDOs and eventually, the 2009 Audit Program. 5. A copy of the list shall be furnished to the Deputy Commissioner-Operations Group (DCIR-OG) and Assistant Commissioner, Assessment Service (ACIR, AS) within three (3) days from issuance of the LAs. 6. All office audit cases shall be covered by Office Audit-Letters of Authority (OA-LAs) to distinguish them from the LAs for RDO. 7. One OA-LA shall be issued for each taxable year under audit. Only OA-LAs with attached official duplicate copies of tax returns shall be signed by the Regional Director. 8. The policy on the simultaneous investigation of all tax liabilities of the taxpayer shall be observed. One OA-LA shall be issued for each taxable year to include all internal revenue tax liabilities of the taxpayer. DTSaIc 9. The workload of each RO shall not exceed thirty (30) cases at any one time, subject to replenishment after the submission of the report of investigation/closure of each case. 10. In case the taxpayer fails to respond to the OA-LA, or if the same is "returned to sender" by the Post Office, the RO shall immediately prepare a written report thereon to the Chief, Assessment Division. The concerned Chief, Assessment Division shall forward the said report to the Special Investigation Division in the Regional Office for appropriate action. 11. In auditing the tax returns and records of the taxpayers, the RO shall perform applicable audit procedures and techniques under RAMO No. 1-2000, except the procedures for a field investigation. The RO shall comply with the reporting requirements prescribed under Annex "B" of this Order. 12. In case there is a Letter Notice (LN) or LN which may be subsequently issued, the policies and procedures per existing revenue issuances regarding LNs shall be followed. 13. The report of investigation shall be submitted to the Review and Evaluation Section in the Assessment Division within sixty (60) days from the issuance of the OA-LA for review. In case the report cannot be rendered within the said period due to constraints attributable to the taxpayer, the RO shall request for revalidation of the OA-LA by preparing a progress report to be approved by the Chief, Assessment Division. In all cases, however, only one revalidation of LA shall be allowed. The Chief, Assessment Division shall transmit the docket to the Regional Director for revalidation of the OA-LA. The previously issued OA-LA shall be stamped "Revalidated on __________" and shall be signed by the Regional Director. 14. Reports of investigation on closed and terminated cases wherein the deficiency taxes per investigation were paid at the Assessment Division level shall be submitted to the Regional Director for final review and approval within ten (10) days from the date of taxpayer's payment of such deficiency tax assessment. Reports of investigation on cases for assessment shall be submitted to the Regional Director at least six (6) months before the prescription date of the cases. 15. All actions on notification of findings, issuance of assessment notice and protest on assessment notice shall be in accordance with the provisions of Revenue Regulations No. 12-99. 16. The DCIR-OG may direct the Assessment Service to conduct a selective review of cases handled under this program. V. REPORTING REQUIREMENTS The Regional Director shall submit to the Assessment Service a Monthly List of Office Audit-Letters of Authority Issued (Annex C) on or before the 10th day of the following month. The Chief of the Assessment Division shall submit the following reports to the Assessment Service for monitoring and evaluation, copy furnished the Regional Director not later than the 10th day of the following month. EIcSTD 1. Monthly Status of Office Audit-Letters of Authority Issued and Acted Upon (Annex D); and 2. Monthly Report on Assessments and Collections on Office Audit Cases (Annex E). VI. REPEALING CLAUSE All other issuances inconsistent herewith are hereby modified or repealed accordingly. VII. EFFECTIVITY This Order shall take effect immediately upon approval. (SGD.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue ANNEX A Assessment Division Revenue Region No. ____, ________ LIST OF TAXPAYERS SELECTED FOR OFFICE AUDIT Name of Address of TIN Taxable Year Revenue Group Taxpayer Taxpayer Officer Supervisor __________ __________ _________ __________ _________ ________ __________ __________ _________ __________ _________ ________ __________ __________ _________ __________ _________ ________ __________ __________ _________ __________ _________ ________ __________ __________ _________ __________ _________ ________ __________ __________ _________ __________ _________ ________ __________ __________ _________ __________ _________ ________ __________ __________ _________ __________ _________ ________ __________ __________ _________ __________ _________ ________ Prepared by: __________________________ Chief, Assessment Division Signature Over Printed Name Approved by: ________________________ Regional Director Signature Over Printed Name ANNEX B CHECKLIST OF REPORTING REQUIREMENTS I. General requirements to be prepared and/or documents to be attached by the Revenue Officer cCESTA 1. Office Audit-Letter of Authority 2. Table of Contents 3. Agreement form (for agreed assessment) 4. Notice for an Informal Conference/Post Reporting Notice with the summary of findings (for non-agreed assessment) 5. Docket Locator Form II. Requirements per tax type A. Income Tax/Withholding Tax A.1 Requirements from the taxpayer 1. Proof of claimed tax credit/s, if applicable 2. Proof of claimed "Interest Expense", if applicable 3. Proof of claimed Bad Debts/worthlessness of credits, if applicable 4. Certificate of Registration issued by the appropriate regulatory agency, together with the conditions attached to such registration, if applicable 5. Proof of entitlement to tax exemption/incentives, if applicable 6. Other documents deemed necessary by the Revenue Officer in the course of investigation A.2 Documents to be prepared and/or documents to be attached by the Revenue Officer 1. Duly filed Income Tax Return with all the required attachments (Certified Financial Statements with Statement of Cost of Goods Sold) 2. Proof of payment of the tax paid per return, including Tax Debit Memo (TDM)/TCC 3. Duly filed Quarterly Income Tax Returns 4. Duly validated Monthly Withholding Tax Returns 5. Duly validated Quarterly Withholding Tax Returns 6. Duly validated Annual Withholding Tax Returns together with the required attachments 7. Duly received Information Returns 8. Beginning and Ending Inventory List, if material/applicable 9. Notice of Loss; Proof of claimed Losses, if applicable 10. Form 0500 Series (Audit Reports) 11. Working papers showing computation of income and/or withholding taxes due duly signed by the Revenue Officer 12. Working papers/schedules on selected accounts related to the findings on investigation duly signed by the Revenue Officer 13. Computation of Gross Income from contracts, if the taxpayer is engaged in "Construction Business" 14. Comparative Report of Deficiency Tax Paid/Assessed, if applicable SaIHDA a. Current year/period b. Previous year/period 15. Result of discrepancy per LN, if applicable 16. Other documents deemed necessary by the Revenue Officer in the course of the investigation B. Value-Added Tax B.1 Requirements from Taxpayer 1. Proof of claimed tax credits, if applicable 2. Proof of payment of deficiency tax, if any a. Current year/period b. Previous year/period 3. Proof of entitlement to tax exemption/incentives, if applicable 4. Certification of the appropriate regulatory agency as to the exempt or zero-rated sales of the taxpayer under its regulatory supervision, if applicable 5. Proof of "Approval for Effective Zero-Rating of Sales", if applicable 6. Photocopy of the Official Receipts evidencing VAT payment on imported purchases, if applicable 7. Proof that the acceptable foreign currency exchange proceeds on export sales/foreign currency denominated sales had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, if applicable 8. Other documents deemed necessary by the Revenue Officer in the course of investigation B.2 Documents to be prepared and/or documents to be attached by the Revenue Officer 1. Duly filed Monthly VAT Declarations 2. Duly filed Quarterly VAT Returns a. Summary List of Sales and Output Tax, and b. Summary List of Purchases and Input Tax, if applicable TSHcIa 3. Proof of claimed tax credit, if applicable 4. Proof of VAT payment 5. Proof of TDM applied, if applicable 6. Form 0500 Series (Audit Report) 7. Working Papers showing computation of VAT payable/excess input tax duly signed by the Revenue Officers 8. Comparative Report of Deficiency Tax Paid/Assessed a. Current year/period b. Previous year/period 9. Result of discrepancy on LN, if applicable 10. Other documents deemed necessary by the Revenue Officer in the course of investigation C. Other Percentage Taxes C.1 Requirements from Taxpayer 1. Proof of claimed tax credits, if applicable 2. Proof of payment of deficiency tax, if applicable a. Current year/period b. Previous year/period 3. Proof of entitlement to tax exemption/incentives, if applicable 4. Certification of the appropriate regulatory agency as to the exempt sales of the taxpayer under its regulatory supervision, if applicable 5. Other documents deemed necessary by the Revenue Officer in the course of investigation C.2 Documents to be prepared and/or documents to be attached by the Revenue Officer 1. Duly validated Percentage Tax Returns, including all the attachments thereto aTADcH 2. Proof of TDM applied, if applicable 3. Form 0500 series (Audit Reports) 4. Working papers showing the computation of the taxable receipts/sales (tax base) and percentage tax due duly signed by the Revenue Officer 5. Reconciliation of Financial Statements' figures and Percentage Tax Returns' figures 6. Schedule of Exempt Sales/Transactions, if applicable 7. Working papers on selected accounts related to the findings of investigation duly signed by the Revenue Officer 8. Comparative Report of Deficiency Tax Paid/Assessed, if applicable a. Current year/period b. Previous year/period 9. Other documents deemed necessary by the Revenue Officer in the course of investigation D. Documentary Stamp Tax D.1 Requirements from Taxpayer 1. Proof of entitlement to tax exemption/incentives, if applicable 2. Proof of payment of deficiency tax, if any a. Current year/period b. Previous year/period 3. Other documents deemed necessary in the course of investigation D.2 Documents to be prepared and/or documents to be attached by the Revenue Officer 1. Duly filed Documentary Stamp Tax Declaration 2. Duly filed Documentary Stamp Tax Return 3. Duly Received Information Returns for Documentary Stamp Tax 4. Proof of TDM applied, if applicable cTIESa 5. Form 0500 Series (Audit Reports) 6. Working Papers showing details and computation of tax base and tax due duly signed by Tax Auditors/Revenue Officers 7. Comparative Report of Deficiency Tax Paid/Assessed a. Current year/period b. Previous year/period Note: In case of non-availability of documents mentioned in items II.A.2, B.2, C.2 and D.2, the Revenue Officer may request photocopies thereof from taxpayer. ANNEX C REVENUE REGION NO. _______, _________________ MONTHLY LIST OF OFFICE AUDIT-LETTERS OF AUTHORITY ISSUED FOR THE MONTH OF ________________________ OA-LA No. Date Issued Name of Taxpayer TIN Taxable Period Revenue Officer Assigned __________ _________ ____________ _______ ___________ ______________ __________ _________ ____________ _______ ___________ ______________ __________ _________ ____________ _______ ___________ ______________ __________ _________ ____________ _______ ___________ ______________ __________ _________ ____________ _______ ___________ ______________ __________ _________ ____________ _______ ___________ ______________ __________ _________ ____________ _______ ___________ ______________ __________ _________ ____________ _______ ___________ ______________ __________ _________ ____________ _______ ___________ ______________ __________ _________ ____________ _______ ___________ ______________ I attest to the accuracy of the information contained herein. Submitted by: _________________________ Regional Director Signature Over Printed Name Note: In case there is no issuance of OA-LA for the month, the Regional Director will still submit the above report with the notation, "No Office Audit LA issued for the Month". ANNEX D ASSESSMENT DIVISION REVENUE REGION NO. _____, __________ MONTHLY STATUS OF OFFICE AUDIT-LETTERS OF AUTHORITY ISSUED AND ACTED UPON FOR THE MONTH OF ________________ OA-LA STATUS * No. Date Issued Name of Taxpayer Taxable Year Code Date Action was Remarks Taken ______ _________ _______________ ___________ _____ ____________ _______ ______ _________ _______________ ___________ _____ ____________ _______ ______ _________ _______________ ___________ _____ ____________ _______ ______ _________ _______________ ___________ _____ ____________ _______ . I attest to the accuracy of the information contained herein. TAEcCS Submitted by: __________________________ Chief, Assessment Division Signature Over Printed Name * Status Indicate the code corresponding to the action Indicate the following information taken under Code columns: under the Remarks column: A OA-LA for which a report of investigation has been submitted B OA-LA cancelled after it has been issued Reason for the cancellation and served to the taxpayer C Revalidated OA-LA D OA-LA reassigned to another Revenue Name of the new Revenue Officer Officer for which the OA-LA has been reassigned E Spoiled OA-LA, cancelled before being issued or served F OA-LA referred to Legal Division, SID Office to whom the case was or other Offices referred and reason for the referral G Other please specify Note: 1. OA-LA with a status code of A refers to a case where the audit is already terminated at the Assessment Division level and the report thereon transmitted to the Office of the Regional Director. 2. OA-LAs for which investigation is still on-going/pending shall not be included in this report. ANNEX E ASSESSMENT DIVISION Revenue Region No. _______ MONTHLY REPORT ON ASSESSMENTS AND COLLECTIONS ON OFFICE AUDIT CASES For the Month of ________