Procedure in Processing Credits/Refunds of Tax Withheld on Wages

March 9, 1973 REVENUE MEMORANDUM ORDER NO. 12-73 SUBJECT : Procedure in Processing Credits/Refunds of Tax Withheld on Wages (beginning with 1972 income tax returns) TO : All Internal Revenue Officers and others concerned. For the proper, uniform and expedient implementation of the pertinent amendatory provisions of Presidential Decree No. 69 insofar as refunds and/or credits of taxes withheld on wages are concerned, more particularly on the payment of interest on delayed refunds, the following procedures are hereby prescribed. I. Regional Offices A. Refundable income tax returns 1. Sort all refundable income tax returns by revenue district and assign assessment numbers accordingly. 2. Forward to DPC all numbered returns (original and duplicate copies) in batches of 100 duly covered by block control sheets. 3. Upon receipt from the National Office of the processed returns, refund warrants of which have already been released, classify and audit same in accordance with existing procedures. B. Output on DPC matching process 1. Upon receipt of the "Master List of Discrepancies",re-audit all income tax returns involved and assess them accordingly whenever necessary. Any action taken must be annotated in the master list, the latter to be made available to internal auditors at anytime. It shall form part of the permanent files of the region. II. Withholding Tax Division A. BIR Form W-3's and alphabetical lists 1. Follow existing procedures in preauditing W-3's and alphabetical lists. In addition, encircle the amount shown on line A of Form W-3 if it reconciles with the total of the corresponding alphabetical list. B. Refund Warrants 1. Distribute warrant registers as follows: Original copy Accounting Division Duplicate copy Withholding Tax Division Triplicate copy Commissioner or his representative Quadruplicate copy Processing copy 2. Attach "refund data slip" to the respective income tax returns and test check data. 3. Test check data printed on warrants, warrant registers and refund data slip against one another. 4. Institute other control measures to detect possible DPC errors. 5. While test-checking under 2 and 3 hereof, forward checks to the Commissioner or his duly authorized representative for signature of checks. By the time they are back from the Commissioner's office, the defective ones will have already been identified. This simultaneous process has to be resorted to because of time element. 6. Mail all signed (no defect) warrants to the payees under existing procedures and arrangements with the Bureau of Posts. 7. Transmit immediately to the respective regional offices (Attn: Chief, Assessment Branch) all refundable income tax returns (original and duplicate copies),refund warrants of which have already been released. D. Output on DPC matching process 1. Master list of Unclaimed Tax Credits a. Update the master list by: (1) consolidating subsequent supplemental listings, and (2) cancelling or posting all items covered by subsequent "Master Lists of tax credits given". 2. Master List of Withheld Taxes Credited but Still Unreported a. Strike totals by employers and verify from available employers' records if amount is covered by return/s on BIR Form W-1. If not, assess employer immediately and annotate action taken in the master list, the latter to be made available to internal auditors at any time. 3. Master List of Tax Credits Given a. Utilize this as source of postings (for updating purposes) to the Master List of Unclaimed Tax Credits. III. Data Processing Center A. BIR Form W-3's and alphabetical lists 1. Extract the following pertinent data from the W-3: a. Year and total tax withheld during the year as shown and encircled on line A b. Employer's TAN, I.D. no.,name and address B. Income tax returns with claims for tax credit for taxes withheld on wages 1. Refundable income tax returns shall be given priority in processing. 2. Observe existing procedures in data extraction except that for every single tax credit for taxes withheld on wages claimed in return and as processed in DPC, whether the return is refundable or otherwise ,the following pertinent data shall be extracted and stored, preparatory to matching process: a. Name and TAN of taxpayer from whom tax was withheld (it could be the spouse's name),gross wages and withholding tax with respect to a particular employer. b. Employer's TAN, I.D. No.,name and address c. Name, TAN and assessment no. of taxpayer's return where credit was given. C. Refund Warrants 1. Prepare refund warrants automatically after data extraction, on amounts generated by the machines as refundable .Provide appropriate measures of checks and balances to guard against machine and/or manual errors. Every week, match warrants currently prepared against those previously processed to detect any duplication before they are finally processed . 2. Prepare separate warrant registers for every batch of 100 returns showing the following information: a. Name, address and TAN of taxpayer b. Assessment no. (numerically arranged) c. Tax due d. Tax credit e. Amount of refund f. Check number (numerically arranged) g. Totals of column c, d and e should be shown The numeric sequence of check numbers shall be the overall arrangement of warrant registers. Total of column d should, at all times, reconcile with the total of all single item of tax credits extracted from the same batch of returns under paragraph B 2 hereof. This same reconciliation process shall also be observed on returns which, though not refundable, contain claims for tax credits for tax withheld on wages. Important :Data printed on warrants, warrant registers and refund notices should emanate from only one and common source, for consistency and uniformity. 3. Prepare a "refund data slip" in duplicate for each return processed showing the following information: a. Name, TAN, address of taxpayer b. Assessment no. c. Tax due, tax credit and balance refunded d. Refund warrant number 4. After processing, transmit the following documents to the Withholding Tax Division on a weekly basis: a. Refundable income tax returns in the same batches of 100 (those found to be with errors and are unprocessable should be segregated and listed separately with error advice) b. Refund warrants c. Warrant registers in quadruplicate d. Refund data slips in duplicate e. Alphabetical lists of warrants being transmitted 5. Income tax returns, other than refundable, shall, after processing, be returned to the respective regional offices. D. Data Watching Process 1. Computer match tax credit data extracted from alphabetical lists attached to W-3's against those extracted from income tax returns (refundable and otherwise). 2. The following shall be generated from the computer matching process: a. Discrepancies either in gross wages or amount of withholding tax . 1.) Prepare a list of discrepancies detected either in gross wages and/or amount of withheld taxes and transmit immediately to the respective regional offices (having jurisdiction over the income tax returns wherein credit was allowed) for assessment and/or other appropriate action. This listing should be alphabetically arranged and appropriately labeled "Master List of Discrepancies". b. Unmatched tax credit data . 1.) Prepare a list of unmatched tax credit data (extracted from alphabetical list of W-3) arranged alphabetically by names of employees and label it "Master List of Unclaimed Tax Credits" and transmit to the Withholding Tax Division. The list should show the employee's name, TAN, gross wages, tax withheld, employer's name and year. 2.) Prepare a list of unmatched tax credit data (extracted from income tax returns) arranged alphabetically by employers and label it "Master List of Withheld Taxes Credited But Still Unreported".They could be excessive, double, unremitted or fictitious claims. Employees' data must be group by employers to facilitate investigation and/or assessment of employers. The above listings shall be transmitted immediately to the Withholding Tax Division. 3.) Prepare a "Master List of Tax Credits Given" showing the following: a.) Name and employee subject to withholding b.) Name and ID no. of employer c.) Gross income and amount withheld d.) Assessment no. e.) Year covered 3.) After the matching process shall have been completed and the listings generated, all W-3's and withholding tax refunds/credits subsequently processed should be communicated periodically thru the abovementioned generated listings, to the Withholding Tax Division and the respective regional offices as the case may be to update the corresponding Master Lists and for appropriate action. 4. All listing generated should cover only one (1) taxable year and should show the inclusive dates of processing covered by said listings . IV. General Instructions 1. Personal queries on or follow-up of current refunds will not be entertained prior to July 15 of each year to insure a smooth and uninterrupted processing. 2. Responsibility for any delay in refunds resulting in payment of interest by the Bureau shall be traced and fixed and accordingly dealt with. V. Effectivity The provisions of this Memorandum are effective immediately until revoked or amended, and all those concerned are hereby enjoined to follow strictly the provisions thereof. MISAEL P. VERA Commissioner of Internal Revenue