Procedure in Processing 1973 Income Tax Returns Involving Refunds/Credits of Tax Withheld on Wages

February 1, 1974 REVENUE MEMORANDUM ORDER NO. 12-74 SUBJECT : Procedure in Processing 1973 Income Tax Returns Involving Refunds/Credits of Tax Withheld on Wages TO : All Internal Revenue Officers and Others Concerned For a more effective, 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. Refundable income tax returns received in all field offices of the region should immediately be segregated and transmitted to the Assessment Branch of the region on a weekly basis. 2. All such refundable returns received in the Assessment Branch shall be preaudited in accordance with the preaudit guidelines in Rev. Memo. Order No. 6-74. The Revenue District no. shall be indicated on the left side of the space provided for assessment number in the return. 3. Group all preaudited returns (original and duplicate copies) into batches of 100 each and transmit immediately to the Withholding Tax Division in the National Office where they will be assigned assessment numbers. Out-of-region returns should be batched separately and duly captioned for the guidance of the latter office. 4. 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", reaudit 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. Refundable income tax returns 1. Preaudit all refundable income tax returns received directly from taxpayers, utilizing the guidelines on preaudit in Rev. Memo. Order No. 6-74. 2. All preaudited returns, including those received from Assessment Branches under paragraph I A 3 hereof shall be assigned their corresponding assessment numbers and immediately forwarded to the Data Processing Center in batches of 100, duly covered by block control sheets. C. 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. Take appropriate action on defective or erroneous refunds. 8. Transmit immediately to the respective regional offices (Attn: Chief, Assessment Branch) the 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 2. Extract the following pertinent data from the alphabetical list: a. Every employee's TAN, name, gross wages, withholding tax and employer's data. The latter is very important in subsequent actions to be taken against delinquent employers. 3. For every set of W-3 and alphabetical list, compare the total extracted from W-3 against the machine total generated from the alphabetical list. a. If the above totals reconcile , store all data extracted preparatory to tax credit and refund processing. Appropriately stamp each W-3 as "processed" to prevent double processing of same . Prepare a listing thereof and return to Withholding Tax Division. b. If the above totals do not reconcile , suspend all data extracted from the corresponding W-3 and alpha list in an error resolution file. Stamp each such W-3 "For Error Resolution ". Prepare a list of all such defective W-3's and alpha list, indicating therein the pertinent discrepancy detected. Forward the said list as well as the W-3's and alpha lists to the Withholding Tax Division for appropriate action. 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. Match warrants currently prepared against one another and 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. Interest f. Amount of refund g. Check number (numerically arranged) h. Totals of column c, d, e and f should be shown as well as total document count of b. 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 e. Interest and interest period, if any 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 list of warrants being transmitted (after July 15) 5. Income tax returns, other than refundable, shall, after processing, be returned to the respective regional offices. D. Data Matching Process 1. Computer-match tax credit data extracted from alphabetical lists 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 labelled " 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 grouped by employers to facilitate investigation and/or assessment of employers. The above listings shall be transmitted immediately to the Withholding Tax Division. c. Matched tax credit data 1.) Prepare a list of tax credits given which match with the corresponding credits extracted from the alphabetical lists, and label it "Master List of Tax Credits Given ". The list should show the following: a.) Name of 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 listings generated should cover only one (1) taxable year and should show the inclusive dates of processing covered by said listings . This is important in the updating process in the region and in the Withholding Tax Division. 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 This Order amends Rev. Memo. Order No. 12-73 and the provisions of this Memorandum are effective immediately until revoked or amended. All those concerned are hereby enjoined to follow strictly the provisions thereof. MISAEL P. VERA Commissioner of Internal Revenue * Text including Section Numbers copied from BIR files.