Processing and Investigation of Individual Refundable Income Tax Returns

January 23, 1981 REVENUE MEMORANDUM ORDER NO. 05-81 SUBJECT : Processing and Investigation of Individual Refundable Income Tax Returns TO : Regional Directors, Chiefs of Assessment Branches, Revenue District Officers, Collection Agents and Others Concerned To insure uniformity in the application of pertinent laws and regulations as well as to define the duties and responsibilities of each revenue office concerned, the following guidelines are hereby promulgated in the processing and investigation of refundable individual income tax returns beginning with the taxable year 1980: cd I. RECEIPT AND TRANSMITTAL OF REFUNDABLE RETURNS The return shall be filed either with the Revenue District Officer, Collection Agent or duly authorized Treasurer of the municipality in which the taxpayer has his legal residence or principal place of business. In case a taxpayer has no legal residence or place of business in the Philippines, the return shall be filed with the International Operations Division. In the processing of returns, the following steps shall be observed: A. COLLECTION AGENT OR AUTHORIZED MUNICIPAL TREASURER 1. Ascertain that the return is properly accomplished paying particular attention to the following: a) that the return is duly signed by or for the individual taxpayer; b) that the name, date of birth and taxpayer account number of filer and spouse, including their address, as well as the name(s), complete date(s) of birth and relationship of dependent(s) to filer are stated; and c) that BIR Form No. 1701-1 (Schedules of Deductions) is attached to support the itemized deductions claimed. 2. Stamp the date of receipt on all copies of the returns and attachments. 3. Retain original and duplicate returns and give the triplicate to the filer. 4. Give priority to, and segregate the refundable returns from the collectible, exempt and even returns. 5. Transmit in batches of 100's both original and duplicate returns received within the week to the Revenue District Officer not later than Friday of the following week. The transmittal list shall be prepared in quadruplicate to be distributed as follows: acd a) Original) Duplicate) - Assessment Branch b) Triplicate - Revenue District Officer c) Quadruplicate - file copy. 6. Out-of-region returns and returns with foreign addresses improperly received should be batched separately and transmitted to the Revenue District Officer under separate transmittal lists. B. REVENUE DISTRICT OFFICER As the immediate supervisor of the collection agents and cash clerks in his district, he is responsible for the orderly receipt as well as the transmittal of returns to his respective regional office. For this purpose, he is directed to: 1. See to it that the collection agents and cash clerks as well as employees assigned to receive income tax returns observe the procedures outlined in I-A-1 to 6 in the receipt and transmittal of the returns. 2. Check the returns transmitted by the collection agents or cash clerks against the transmittal lists. 3. Transmit to the Assessment Branch the returns with the covering transmittal lists as received from the collection agents or cash clerks not later than three (3) days after the receipt thereof. However, in the case of returns received in his office within the week, the same shall be batched in 100's and transmitted not later than Friday of the following week. The transmittal list shall be prepared in triplicate to be distributed as follows: a) Original) Duplicate) - Assessment Branch b) Triplicate - file copy. Out-of-region returns and returns with foreign addresses improperly received, together with similar returns coming from Collection Agents and Cash Clerks shall be transmitted to the Assessment Branch within the period prescribed above. 4. Give precedence to refundable returns. II. PROCESSING OF RETURNS The processing of refundable returns shall be made in the Assessment Branch of each Revenue Region. The Regional Director shall be responsible for the fast and effective preaudit of returns as well as the continuous weekly transmittal of preaudited returns, the last batch of which should reach the Data Processing Center not later than June 30 of the year the returns are filed. A. ASSESSMENT BRANCH The responsibility of the Branch begins from the receipt up to the date of transmittal of the refundable returns to the Data Processing Center. cdt 1. Assignment and Control of Returns a) Check returns against the transmittal list, and inform the transmitting office of any discrepancy. Transmit out-of-region returns and returns with foreign addresses to the corresponding Assessment Branches and to the International Operations Division, respectively. b) Assign returns by batch. Stamp on both original and duplicate transmittal the following information: (1) name of examiner: (2) date assigned; and (3) date returned. Stamp the name of the examiner to whom the returns will be assigned on the upper right hand corner of both original and duplicate returns for the purpose of fixing responsibility for the error in the preaudit. Require the examiner to acknowledge the receipt of returns. c) File original of transmittal lists by Revenue District Office, and the duplicate shall remain with the batched returns. 2. Preaudit of Returns a) Read attached preaudit guidelines (Annex "A") carefully. b) Require examiner to place his initial and indicate the date when preaudit was made on the spaces provided for on the return, upon termination of the preaudit. c) Require the preparation of an audit sheet, duly signed, in every case where the amount of refund is increased or reduced by at least P5.00 to reflect the change. 3. Preparation of Preaudit Reports a) Report the result of the preaudit as shown in the audit sheet thus - the difference between the tax due per preaudit and the tax due per return shall be reported as collection if it is within the amount of tax credit. The amount in excess of the tax credit shall be reported as assessment (Report of Preaudited Returns, Annex "B"). This report shall form part of the examiner's performance on assessment and collection. b) Check the number of preaudited returns submitted against the list on file. 4. Numbering of Returns a) Segregate the preaudited returns into 2 categories: (1) Refundable returns with excess tax credit of P30.00 or less for the preparation of Tax Credit Memo. (2) Refundable returns with excess tax credit of more than P30.00 for the preparation of treasury warrants. b) Batch into 100's the segregated returns. c) Number the original and duplicate returns as segregated in accordance with the attached Allotment of Assessment Numbers (Annex "C"). 5. Transmittal of Returns to DPC a) Transmit weekly the numbered returns (original and duplicate) to the Data Processing Center. b) Cover the transmittal by block control sheet (Annex "D") on which the numbers of the first and last returns of the batch are indicated. Example: 4B-200001-100100. c) Retain the third copy of the block control sheet. 6. Transmittal of Processed Returns to Administrative Branch Upon receipt of processed returns in batches from the Refund Audit Division, detach remaining duplicate returns for investigation and transmit all original returns to the Administrative Branch. B. DATA PROCESSING CENTER 1. Check the number of returns received against the covering block control sheet. 2. Transmit to the Refund Audit Division for immediate re-audit all returns rejected by the computer. 3. Prepare and transmit immediately treasury warrants and tax credit memos printed to the withholding Tax Division together with the returns (original and duplicate), alphabetical listings, post office listings, refund data slips, treasury warrants and tax credit memo registers. C. WITHHOLDING TAX DIVISION 1. Verify the correctness of refund data slip against the income tax return. 2. Prepare the treasury warrants/cheques, tax credit memos and post office listings for mailing. 3. Transmit the treasury warrants/cheques and TCMs with the covering post office listings to the General Services Division for mailing. 4. Transmit original and duplicate returns to the Refund Audit Division immediately after the treasury warrants/cheques or tax credit memos have been forwarded to the General Services Division. The transmittal shall be covered by two copies of the treasury warrant/cheque and tax credit memo registers. D. GENERAL SERVICES DIVISION Mail the treasury warrants and TCMs. The treasury warrants shall be sent by registered mail and the TCMs by ordinary mail. E. INTERNATIONAL OPERATIONS DIVISION Process and investigate individual refundable returns with no legal residence and place of business in accordance with existing procedures. F. REFUND AUDIT DIVISION 1. Re-audit all rejected returns received and send back the same to DPC for check/treasury warrant/TCM preparation. Forward returns to the respective Assessment Branches where they belong after they have become collectible upon re-audit. 2. Segregate duplicates of returns selected for investigation and note on the accompanying treasury warrant/cheque and tax credit memo registers. 3. Transmit to the respective Assessment Branches the original and duplicate returns not selected for investigation as well as the original of those selected for investigation together with the treasury warrant/cheque and tax credit memo registers. 4. File copies of treasury warrant/cheque and tax credit memo registers by region. This Order takes effect immediately. (SGD.) RUBEN B. ANCHETA Acting Commissioner ANNEX A PREAUDIT GUIDELINES A. COMPLETENESS OF RETURN . Check if return (BIR Form 1791 and 1701(A) is perfect or imperfect. 1. Perfect Return is one which contains all information/data necessary to determine the deductions/exemptions claimed, and for which the amounts stated and correctly given "up to the amount subject to tax". 2. Imperfect Return is one which either lacks the information/data to determine the exemptions/deductions, or the basis thereof (no schedules of deductions attached) or the figures given are mathematically incorrect, so that the "amount subject to tax" as stated on the return when recomputed will result in a lesser or bigger amount. B. RETURNS SUBJECT TO CORRESPONDENCE . In the following cases, the return lacks the necessary information/data or basis of exemption/deduction, or the taxpayer failed to accomplish the return properly. The examiner conducting the preaudit shall immediately check-mark the appropriate box or boxes on the form letter corresponding to what is being requested from the filer (see attached Annex "E"). cd i 1. The return is unsigned by the filer or his authorized agent. An unsigned return is not a return. 2. The statements of taxes withheld (BIR Form W-2, 1743 and 1745A or bank certificate) were not attached to the return. These statements are required to be signed (except computerized statements) and furnished by withholding agent-employer/payor to the employee/payee, and constitute the initial basis for the application of the tax credit. 3. The filer claims exemption as head of family and additional exemptions, but did not indicate relationship, name and date of birth of dependent father, mother, brother or sister, and children. 4. Filer's status is "married", but he/she either fails to indicate the name of spouse, or having indicated the name of spouse, failed to state the occupation or profession and income of the spouses, if any. 5. Filer's status is "legally separated" and claims exemption for a dependent child, but fails to indicate name of spouse. 6. Dependent being claimed for additional exemption is an "adopted" child, but filer does not state that the child is legally adopted. 7. Filer is single and claims head of family status with additional exemption for a dependent child, but fails to indicate that the child is recognized natural child or legally adopted child. 8. Surname of a dependent child differs from that of the father and it is not indicated that the dependent is a step-child. 9. The amount of wages or gross income is not stated on Form W-2, 1743 and 1745A. 10. Unlimited deduction for contribution is claimed, but no information or document is given to show that the contribution was actually made and that the recipient is one of the qualified donees of contributions deductible in full. 11. Deductions for compensation income and income from business and other activities are not segregated rendering impossible the determination of loss; representing the excess over the income of allowable expenses and other deductions directly or approximately attributable or related to the production of earning of income from a particular line of business or activity. cdt In case the taxpayer fails to supply the information or data requested or fails to submit the statements of credits (BIR Form W-2, 1743 and 1745A), or to properly accomplish the return after the lapse of thirty (30) days from the date of mailing of request (Annex E), the particular deduction(s) or exemption(s) in question shall be disallowed without prejudice to reallowance when the information needed is given or the filer has properly accomplished the return. Any change in the status of the filer, or the dependent dying or becoming 21 years old within the taxable year will not affect exemptions. Thus, the spouse or dependent child may die or child may have reached 21 years, 11 months and 30 days on December 31 of the taxable year. C. RETURNS SUBJECT TO PREAUDIT . The following returns require the preparation of audit sheets to reflect the change of the return from "refundable to collectible", or from "refundable to even", or reduction of the amount of refund per return as a result of the disallowance of exemption/deduction for lack of basis. 1. Filer claims personal and additional exemption on the basis of unqualified dependents; step-brother or step-sister, brother-in-law or sister-in-law, step-parent or parent-in-law, nephew or niece, aunt or uncle, (half-brother or half-sister is qualified). 2. Filer who is single claims "head of family" status, but does not state name and date of birth and relationship to dependent, allow only P3,000.00 The amount of exemption for a single person or a married person juridically decreed or legally separated from his or her spouse is P3,000.00; for married man or woman - P6,000.00; and for head of family - P4,500.00 (P.D. 1773). The term "head of family" means an unmarried man or woman (including widow or widower) with qualified dependents such as one or both parents, or with one or more brothers or sisters, or with one or more legitimate, recognized natural, or adopted children. The "head of a family", who is the natural or adopting parent of a qualified dependent is entitled to the additional exemption. 3. Filer claims more than four (4) otherwise qualified dependents, allow only P2,000.00 for each of the four (4) legitimate recognized natural or adopted children. However, the additional exemption of P1,000.00 shall be allowed only for each qualified child born in 1972 and prior years. cdt 4. Apparent non-deductible items: a) personal, family and living expenses; b) life insurance premiums; c) provision for bad debts; and d) income and transfer taxes, stock transaction tax, amusement tax, gasoline tax (energy and sales taxes are only deductible from business income). 5. Filer claims itemized deduction, but failed to accomplish and attach the (BIR Form 1701-1, schedules of deductions). 6. Excess amount of wages or payments stated on Form W-2, 1743 and 1745A over income declared in the return. 7. Excess standard deduction for working wife over 10% of her compensation income (working wife is entitled to this deduction even if husband has no income). 8. Amount of tax credit per BIR Form W-2, 1743, and 1745A does not tally with amount of tax credit being claimed per return (it may show that the gross income as reported is under-declared), whichever is lesser. 9. Any other circumstances or situations which will result in the reduction or increase in the amount of refund per return. ANNEX B REPORT ON PREAUDITED CASES DATE __________________ 19 ___ NO. __________ NAME OF TAXPAYER T W T D R A less TDR COLL. ASSMT . 1. ______________________ :_________ :______________ : ____ :________ : 2. ______________________ :_________ :______________ : ____ :________ : 3. ______________________ :_________ :______________ : ____ :________ : 4. ______________________ :_________ :______________ : ____ :________ : 5. ______________________ :_________ :______________ : ____ :________ : 6. ______________________ :_________ :______________ : ____ :________ : 7. ______________________ :_________ :______________ : ____ :________ : 8. ______________________ :_________ :______________ : ____ :________ : 9. ______________________ :_________ :______________ : ____ :________ : 10. ______________________ :_________ :______________ : ____ :________ : 11. ______________________ :_________ :______________ : ____ :________ : 12. ______________________ :_________ :______________ : ____ :________ : 13. ______________________ :_________ :______________ : ____ :________ : 14. ______________________ :_________ :______________ : ____ :________ : 15. ______________________ :_________ :______________ : ____ :________ : 16. ______________________ :_________ :______________ : ____ :________ : 17. ______________________ :_________ :______________ : ____ :________ : 18. ______________________ :_________ :______________ : ____ :________ : 19. ______________________ :_________ :______________ : ____ :________ : 20. ______________________ :_________ :______________ : ____ :________ : 21. ______________________ :_________ :______________ : ____ :________ : 22. ______________________ :_________ :______________ : ____ :________ : 23. ______________________ :_________ :______________ : ____ :________ : 24. ______________________ :_________ :______________ : ____ :________ : 25. ______________________ :_________ :______________ : ____ :________ : 26. ______________________ :_________ :______________ : ____ :________ : 27. ______________________ :_________ :______________ : ____ :________ : 28. ______________________ :_________ :______________ : ____ :________ : 29. ______________________ :_________ :______________ : ____ :________ : 30. ______________________ :_________ :______________ : ____ :________ : 31. ______________________ :_________ :______________ : ____ :________ : 32. ______________________ :_________ :______________ : ____ :________ : 33. ______________________ :_________ :______________ : ____ :________ : 34. ______________________ :_________ :______________ : ____ :________ : 35. ______________________ :_________ :______________ : ____ :________ : 36. ______________________ :_________ :______________ : ____ :________ : 37. ______________________ :_________ :______________ : ____ :________ : 38. ______________________ :_________ :______________ : ____ :________ : 39. ______________________ :_________ :______________ : ____ :________ : 40. ______________________ :_________ :______________ : ____ :________ : 41. ______________________ :_________ :______________ : ____ :________ : 42. ______________________ :_________ :______________ : ____ :________ : 43. ______________________ :_________ :______________ : ____ :________ : 44. ______________________ :_________ :______________ : ____ :________ : 45. ______________________ :_________ :______________ : ____ :________ : 46. ______________________ :_________ :______________ : ____ :________ : 47. ______________________ :_________ :______________ : ____ :________ : 48. ______________________ :_________ :______________ : ____ :________ : 49. ______________________ :_________ :______________ : ____ :________ : 50. ______________________ :_________ :______________ : ____ :________ : 51. ______________________ :_________ :______________ : ____ :________ : 52. ______________________ :_________ :______________ : ____ :________ : 53. ______________________ :_________ :______________ : ____ :________ : 54. ______________________ :_________ :______________ : ____ :________ : 55. ______________________ :_________ :______________ : ____ :________ : 56. ______________________ :_________ :______________ : ____ :________ : 57. ______________________ :_________ :______________ : ____ :________ : 58. ______________________ :_________ :______________ : ____ :________ : 59. ______________________ :_________ :______________ : ____ :________ : 60. ______________________ :_________ :______________ : ____ :________ : 61. ______________________ :_________ :______________ : ____ :________ : 62. ______________________ :_________ :______________ : ____ :________ : 63. ______________________ :_________ :______________ : ____ :________ : 64. ______________________ :_________ :______________ : ____ :________ : 65. ______________________ :_________ :______________ : ____ :________ : 66. ______________________ :_________ :______________ : ____ :________ : 67. ______________________ :_________ :______________ : ____ :________ : 68. ______________________ :_________ :______________ : ____ :________ : 69. ______________________ :_________ :______________ : ____ :________ : 70. ______________________ :_________ :______________ : ____ :________ : 71. ______________________ :_________ :______________ : ____ :________ : 72. ______________________ :_________ :______________ : ____ :________ : 73. ______________________ :_________ :______________ : ____ :________ : 74. ______________________ :_________ :______________ : ____ :________ : 75. ______________________ :_________ :______________ : ____ :________ : 76. ______________________ :_________ :______________ : ____ :________ : 77. ______________________ :_________ :______________ : ____ :________ : 78. ______________________ :_________ :______________ : ____ :________ : 79. ______________________ :_________ :______________ : ____ :________ : 80. ______________________ :_________ :______________ : ____ :________ : 81. ______________________ :_________ :______________ : ____ :________ : 82. ______________________ :_________ :______________ : ____ :________ : 83. ______________________ :_________ :______________ : ____ :________ : 84. ______________________ :_________ :______________ : ____ :________ : 85. ______________________ :_________ :______________ : ____ :________ : 86. ______________________ :_________ :______________ : ____ :________ : 87. ______________________ :_________ :______________ : ____ :________ : 88. ______________________ :_________ :______________ : ____ :________ : 89. ______________________ :_________ :______________ : ____ :________ : 90. ______________________ :_________ :______________ : ____ :________ : 91. ______________________ :_________ :______________ : ____ :________ : 92. ______________________ :_________ :______________ : ____ :________ : 93. ______________________ :_________ :______________ : ____ :________ : 94. ______________________ :_________ :______________ : ____ :________ : 95. ______________________ :_________ :______________ : ____ :________ : 96. ______________________ :_________ :______________ : ____ :________ : 97. ______________________ :_________ :______________ : ____ :________ : 98. ______________________ :_________ :______________ : ____ :________ : 99. ______________________ :_________ :______________ : ____ :________ : 100. ______________________ :_________ :______________ : ____ :________ : TOTAL P P ======== ====== _________________________ _________________________ Group Supervisor Print Name & Sign Refundable Collectible Exempt Even For Correspondence Total ANNEX C ALLOCATION OF ASSESSMENT NUMBER ON REFUNDABLE RETURNS FOR TCM AND REFUND CHECK TCM TW 1 000001 - 050000 050001 - 2 000001 - 050000 050001 - 3-A 000001 - 050000 050001 - 3-B 000001 - 050000 050001 - 4-A 000001 - 100000 100001 - 4-B 000001 - 200000 200001 - 4-C 000001 - 050000 050001 - 5 000001 - 050000 050001 - 6-A 000001 - 050000 050001 - 6-B 000001 - 050000 050001 - 7 000001 - 050000 050001 - 8 000001 - 050000 050001 - 9 000001 - 050000 050001 - 10-A 000001 - 050000 050001 - 10-B 000001 - 050000 050001 - 11-A 000001 - 050000 050001 - 11-B 000001 - 050000 050001 - ANNEX D BLOCK CONTROL SHEET Revenue Region No. ________ ________________________ Block Control Sheet No. ______ ASSESSMENT NO. __________________________ Year ___________ 1. ____________________ 34. ____________________ 67. ____________________ 2. ____________________ 35. ____________________ 68. ____________________ 3. ____________________ 36. ____________________ 69. ____________________ 4. ____________________ 37. ____________________ 70. ____________________ 5. ____________________ 38. ____________________ 71. ____________________ 6. ____________________ 39. ____________________ 72. ____________________ 7. ____________________ 40. ____________________ 73. ____________________ 8. ____________________ 41. ____________________ 74. ____________________ 9. ____________________ 42. ____________________ 75. ____________________ 10. ____________________ 43. ____________________ 76. ____________________ 11. ____________________ 44. ____________________ 77. ____________________ 12. ____________________ 45. ____________________ 78. ____________________ 13. ____________________ 46. ____________________ 79. ____________________ 14. ____________________ 47. ____________________ 80. ____________________ 15. ____________________ 48. ____________________ 81. ____________________ 16. ____________________ 49. ____________________ 82. ____________________ 17. ____________________ 50. ____________________ 83. ____________________ 18. ____________________ 51. ____________________ 84. ____________________ 19. ____________________ 52. ____________________ 85. ____________________ 20. ____________________ 53. ____________________ 86. ____________________ 21. ____________________ 54. ____________________ 87. ____________________ 22. ____________________ 55. ____________________ 88. ____________________ 23. ____________________ 56. ____________________ 89. ____________________ 24. ____________________ 57. ____________________ 90. ____________________ 25. ____________________ 58. ____________________ 91. ____________________ 26. ____________________ 59. ____________________ 92. ____________________ 27. ____________________ 60. ____________________ 93. ____________________ 28. ____________________ 61. ____________________ 94. ____________________ 29. ____________________ 62. ____________________ 95. ____________________ 30. ____________________ 63. ____________________ 96. ____________________ 31. ____________________ 64. ____________________ 97. ____________________ 32. ____________________ 65. ____________________ 98. ____________________ 33. ____________________ 66. ____________________ 99. ____________________ 100. ____________________ ANNEX E Republic of the Philippines Ministry of Finance BUREAU OF INTERNAL REVENUE REVENUE REGION NO. _________ ASSESSMENT BRANCH ______________________________ ________________19 ____ ________________________ ________________________ ________________________ Sir/Madam: The processing of your claim for refund the year 19 ____ is being held in abeyance pending submission of the data/papers and/or compliance with requirement stated opposite the box marked X below: [ ] 1. Names, dates of birth of, and relationship to, dependents. [ ] 2. Name and gross income of spouse and sources thereof. [ ] 3. Name/s and address/es of employer/withholding agent. [ ] 4. If legally separated, please submit name of court, case number and date of court order granting legal separation. [ ] 5. If child is legally adopted, please submit name of court, case number and date of court order approving petition for adoption. cd [ ] 6. Submit withholding statements: [ ] a) BIR Form W-2 (Withholding Tax on Wages) [ ] b) BIR Form 1743 (Withholding Tax on Dividend/Royalty) [ ] c) Bank Certification (Withholding Tax on Bank Deposit Interest) [ ] 7. Income tax return not signed. Please come to this Office to sign it. [ ] 8. Segregate business expenses from expenses deductible from employment Income. [ ] 9. Segregate clothing, quarter and subsistence allowance from basic salary. [ ] 10. ____________________________________ Please submit the above/documents and/or comply with above requirement/s within ten (10) days from receipt hereof: otherwise, we shall be constrained to disallow your corresponding personal exemptions/deductions/suspend your claim. Your prompt compliance will facilitate the processing of your claim for refund. Very truly yours, RUBEN B. ANCHETA Acting Commissioner of Internal Revenue