Last Priority in Audit and Investigation

March 23, 1983 REVENUE MEMORANDUM ORDER NO. 08-83 SUBJECT : Last Priority in Audit and Investigation TO : The Service Chiefs, Sector Operations and National Assessment Offices, Division Chiefs, Thereunder, Regional Directors, Revenue District Officers and Others Concerned I. STATEMENT OF POLICY - A policy to encourage voluntary tax compliance, reduce administrative costs and minimize irritants incident to the investigation of taxpayers is hereby adopted, whereby taxpayers complying with certain prescribed conditions will be given the last priority in the audit and investigation of tax returns. II. SCOPE - The privilege of last priority in audit and investigation shall extend only to the income and percentage tax returns of taxpayers in a given year starting 1982, and shall not include the gross income tax returns of individuals reporting gross compensation income under Sec. 28(b) of the Tax Code. As used herein, the term "taxpayers" refers to individuals, corporations, estates and trusts. cd III. DETERMINATION OF LAST PRIORITY PRIVILEGE- 1. "Last priority" means that the audit and investigation of returns shall be conducted only when authorized by the Commissioner of Internal Revenue. The privilege of last priority shall not, however, apply to the following cases: 1.1 Where there is strong evidence showing the commission of fraud; or 1.2 Where verification is necessary for the Commissioner of Internal Revenue to obtain information relevant to the tax liability of another person pursuant to Sec. 7(b) of the National Internal Revenue Code, as amended; or 1.3 Where the taxpayer requests for a refund or credit of any taxes paid. 2. Taxpayers who in their income or percentage tax returns in a given year have made payments amounting to at least 25% above the payments made in the immediately preceding year shall be entitled to qualify for the privilege of last priority herein granted, subject, however, to the conditions prescribed under 2.1, 2.2 and 2.3 hereof. Likewise, amendments to income and percentage tax returns as well as deficiency tax assessments issued by this Office shall be included, in the computation of the 25% needed for the availment of this privilege. To illustrate: INCOME TAX a. Percentage tax paid for taxable year a. Income tax paid for taxable year 1982 per return P125,000.00 b. (1) Income tax paid for taxable year 1981 (per return and deficiency tax assessment, if any) 100,000.00 (2) Add: 25% thereof 25,000.00 (3) Total income tax paid for the year 1981 plus 25% thereof 125,000.00 c. Percentage increase of tax payment 25% PERCENTAGE TAX a. Percentage tax paid for taxable year 1982 per return P100,000.00 b. (1) Percentage tax paid for taxable year 1981 (per return and deficiency tax assessment, if any) 80,000.00 (2) Add: 25% thereof 20,000.00 (3) Total percentage tax paid for the year 1981 plus 25% thereof 100,000.00 c. Percentage increase of tax payment 25% 2.1 Where the tax payment for a given year in either the income or percentage tax returns does not exceed that of the immediately preceding year by 25%, the taxpayer concerned shall not be accorded the privilege of last priority with respect only to that return which does not comply with the 25% requirement. In such a case, the return which fails to comply with said requirement shall be still subject to the regular audit and investigation. For instance, a taxpayer made the following payments for 1981 and 1982: 1981 1982 Percentage Increase of tax payment Income Tax P100,000.00 P125,000.00 25% Percentage Tax 80,000.00 92,000.00 15% As seen from the above illustration, the taxpayer cannot avail of the privilege with respect to his percentage tax return since his tax payment for percentage tax in 1982 is only an additional of 15% which is less than the 25% requirement. 2.2 In the case of either income or percentage tax returns where no tax payments are declared per return, the same shall not qualify for availment of the privilege of last priority unless the minimum tax payments in 2.3 hereof are made. 2.3 Minimum income and percentage tax payments for any given year, starting 1982 must not be lower than P10,000 for individuals and P50,000 for corporations in order that availment shall be effective. IV. MECHANICS FOR AVAILMENT - 1. A taxpayer availing of this privilege should upon filing the current income and percentage tax returns accomplish a "SUPPLEMENTARY STATEMENT", (ANNEX "A" AND/OR ANNEX "B") in duplicate to be attached to the corresponding tax returns. 2. Two xerox or photostat copies of the following documents must be attached to the supplementary statement: To Annex A: a) Income tax returns filed for the current and prior taxable years; and b) Confirmation receipts covering income tax payments for the current and prior taxable years, per return and per investigation. To Annex B: a) Percentage tax returns filed for the current and prior taxable years; and b) Confirmation receipts covering percentage tax payments for the current and prior taxable years, per return and per investigation. aisa dc It is desired that this Order be strictly complied with and should be given as wide a publicity as possible. (SGD.) RUBEN B. ANCHETA Acting Commissioner