Audit Program for 1996

June 18, 1996 REVENUE MEMORANDUM ORDER NO. 12-96 SUBJECT : Audit Program for 1996 TO : All Internal Revenue Officers and Others Concerned I. Objectives of the Audit Program The Audit Program is prepared annually to set the guidelines for the conduct of audit for each year. The objectives of the Audit Program are to enhance a high degree of voluntary compliance and encourage the correct reporting of income, transfer, business and all other internal revenue taxes through the exercise of the enforcement (audit and investigation) function of the Bureau. In the determination of the taxpayer's correct tax liability, a quantity audit must be performed. Quality audit means the examination of the taxpayer's book and records in sufficient depth to ascertain the correctness and validity of entries thereon and the propriety of application of tax laws; the conduct of income investigations, where warranted, to ensure the proper and complete reporting of income regardless of source; the determination of the taxpayer's responsibilities regarding the filing of all tax and information returns; and the documentation in sufficient detail of the conclusions reached to enable the reader to comprehend the process on how the results of the audit were arrived at. II. Selection and Audit Policies A. All Letters of Authority (LA) shall be issued and approved by the Revenue District Officers, Tax Fraud cases and the issuance of LAs by the Intelligence and Investigation Service and the Special Investigation Divisions of the regional offices shall be governed by RMO Nos. 15-95, 31-95 and 1-96. B. All tax audits, including verification of claims for tax credits and refunds, shall covered by LAs, except the following: 1. Capital gains tax returns for transactions involving sale or transfer of real property and/or shares of stocks; 2. Protested case; 3. Estate tax returns with a gross estate of Two Million Pesos (P2,000,000.00) or below for Revenue Region Nos. 5, 6, 7 and 8 (Valenzuela, Manila, Quezon City and Makati) and One Million Pesos (P1,000,000.00) or below for all other regions, provided that the properties of the decedent are covered by only one revenue district office. For the purpose of determining whether or not an estate tax return shall be covered by a Letter of Authority, the value of the family home shall be included in the Two Million Pesos (P2,000,000.00) or One Million Pesos (P1,000,000.00) threshold, as the case may be. 4. Donor's tax returns where the gross gift during the same calendar year amounts to One Million Pesos (P1,000,000.00) or below for Revenue Region Nos. 5, 6, 7 and 8 and Five Hundred Thousand Pesos (P500,000.00) or below for all other regions, provided that the properties donated are located within the same revenue district office; 5. Claims for tax credit or refunds of individual taxpayers arising from business income where all the following conditions are present: a. For Revenue Regions 5, 6, 7 and 8 (1) the amount of the claim does not exceed P20,000.00 and (2) the gross sales/receipts do not exceed P5,000,000.00 b. For all other Revenue Regions outside of Metro Manila: (1) the amount of the claim does not exceed P10,000.00 and (2) the gross sales/receipts do not exceed P2,000,000.00. The above claims for tax credit/refund shall be subject to pre-audit. However, if there are indications of the need for a detailed audit, the Revenue Officer shall recommend the issuance of a Letter of Authority to the Revenue District Officer (RDO). The concerned RDO shall forward the recommendation for issuance of the LA to the Assessment Service through the Revenue Regional Director. Verification of claims for refund on compensation income shall not be covered by Letters of Authority and shall be handled preferably by Document Processors or other available clerical personnel. BIR Forms 1717 shall be prepared for all reports of verification or investigation, whether or not covered by a Letter of Authority, in accordance with Section VI, Reporting Requirements. 6. Income tax returns of individuals engaged in business or in the practice of their profession who have availed of the 40% optional deduction. Verification of these returns shall be limited to the checking of the mathematical accuracy of the figures reflected in the return. This rule shall not apply where the Bureau receives reliable information that there is misdeclaration of gross sales or receipts. 7. Claims for VAT refunds in the amount of P100,000.00 and below for the period(s) claimed. 8. Taxpayers retiring from business with gross annual sales or receipts below P5,000,000.00. B.1. The foregoing notwithstanding, Letters of Authority shall be issued to cover the examination of the following returns: B.1.1 Estate tax returns where the decedent has properties located in at least two areas under the jurisdiction of different Revenue District Offices even if the gross does not exceed Two Million Pesos (P2,000,000.00) for Revenue Region Nos. 5, 6, 7 and 8 (Valenzuela, Manila, Quezon City and Makati) or One Million Pesos (P1,000,000.00) for all other regions; B.1.2 Donor's tax returns where the properties donated are located in areas under the jurisdiction of at least two Revenue District Offices, even if the gross gift during the same calendar year does not exceed One Million Pesos (P1,000,000.00) for Revenue Region Nos. 5, 6, 7 and 8 (Valenzuela, Manila Quezon City and Makati) and Five Hundred Thousand Pesos (P500,000.00) for all other regions; B.1.3 Where after the verification of the estate tax return without Letter of Authority has commenced, it was found out that there was omission/misdeclaration of the properties of the decedent in the return or where after the verification of the donor's tax return has started, it was ascertained that there was omission of prior donations made during the same calendar year or that there was misdeclaration of the value of the properties declared in the donor's tax return, the Revenue District Officer shall, upon recommendation of the concerned Revenue Officer, issue a Letter of Authority for a more in-depth examination of the case. For the purpose of this Order, the terms specified below shall have the following meanings: a. Gross Estate means the value of all real and personal properties as declared in the estate tax return; b. Gross Gift means the value of all real and personal properties declared in the donor's tax return; and c. There is omission/misdeclaration when the value of the properties omitted or misdeclared are : 1. For real properties Lower than the zonal value in places where there are zonal value or actual fair market value in places where no zonal values are established. 2. For personal properties Lower by more than 50% of the actual fair market value. B.1.4 Where no return has been filed on properties transmitted by a decedent/donor, the Revenue District Officer shall prepare the corresponding return on the basis of the best evidence available pursuant to Section 16 (b) of the National Internal Revenue Code and issue a Letter of Authority if found to be above the threshold limits set by this Order. C. Where the initial findings of the Revenue Officer in the audit or verification of estate and donor's tax returns indicate prima facie existence of fraud, the case shall be referred to the Special Investigation Division (SID) for appropriate action under Revenue Memorandum Order No. 15-95. D. The Certificate Authorizing Registration (CAR) on the transmission of real property by inheritance or donation shall be issued by the RDO having jurisdiction over the location of the real property. Letters of Confirmation (Annex E) addressed to the RDOs where the real properties are situated shall be prepared by the RDOs which conducted the audit (with LA) or verification (with RVO). The Confirmation Letters shall be signed by the Chief, Assessment Division and mailed to the concerned RDO within twenty-four (24) hours from approval of the reports of audit/verification. The concerned RDO shall issue the CAR within one (1) day from receipt of the Confirmation Letter. E. Capital gains tax returns, estate tax return, donor's tax returns and claims for tax credit or refund of individual taxpayers arising from business income which do not exceed the thresholds specified in this Order shall, before the start of processing, be covered by a Return Verification Order (Annexes A1 to A6) duly signed by the Revenue District Officer. All return Verification Orders (RVOs) shall be issued in duplicate. The original RVO shall be attached to the docket and the duplicate shall form part of the RDO file. For effective control, RVOs shall be serially numbered, preceded by the RDO No., the year Order was issued and in accordance with the following codes: Capital Gains Tax Return RVO-C (RDO No.)-(year)-(number) Estate Tax Return RVO-E (RDO No.)-(year)-(number) Donor's Tax Return RVO-D (RDO No.)-(year)-(number) Protested cases RVO-P (RDO No.)-(year)-(number) Taxpayers retiring from business RVO-R (RDO No.)-(year)-(number) Claims for tax credit or refund to be assigned in batches RVO-R/C (RDO No.)-(year)-(number) Except for capital gains tax returns, cases covered by RVOs shall be processed within thirty (30) days from receipt thereof. All cases for which RVOs have been issued shall be subject to review by the Assessment Division. F. Package audit system procedures shall be followed, regardless of the amount of gross sales/receipts of the taxpayer. In the audit of manufactures subject to excise tax, Revenue Officers who have the knowledge and competency in the audit of excise taxes shall be included, in an assisting capacity, if their expertise is needed as determined by the Revenue District Officer. In such cases, the Revenue District Officer shall issue a memorandum authorizing said Revenue Officer(s) to assist the Revenue Officer(s) as designated on the LA in the conduct of the audit with respect to excise tax. G. No LA shall be issued unless the duplicate copy of the tax return of the taxpayer for the taxable year covered by the LA is attached thereto except in the following cases: 1. The tax return of the taxpayer can not be located in the Revenue District Office. In this case, a certification to this effect shall be issued by the Revenue District Officer and such certification shall be attached to the LA. 2. The basis of the LA or tax case is the result of: a. Tax Mapping Program or b. Third Party Information Program H. For large taxpayers or complex tax cases, as defined in a separate revenue issuance, more than one Revenue Officer in the same RDO may be assigned to conduct the audit. I. One LA shall be issued for each taxable year. In the case of General Professional Partnerships, the Letter of Authority issued for the partnership shall likewise apply to the respective distributive shares of each partner as reflected in their individual income tax return. The Revenue Officer may, however, recommend for the issuance of a Letter of Authority for any individual partner where warranted. J. No LA shall be revalidated without an attached progress report from the Revenue Officer(s) conducting the audit, duly noted by the Group Supervisor. K. Taxpayers who have been examined for the prior year shall not be investigated for the immediately succeeding period by the same Revenue Officer and/or Group Supervisor except in Revenue District Offices where there is only one Revenue Officer and/or Group Supervisor and in fraud and policy cases assigned by the Commissioner to be handled by Revenue Officers assigned in the RDO. L. Joint and coordinated examinations shall be covered by a separate revenue issuance. M. Correspondence cases are strictly prohibited except for those covered by Return Verification Orders under item II.E of this Order. All 1994 and prior year tax returns not currently under audit or claiming for a tax credit/refund which are not part of the Audit Program for 1996 shall be transmitted to the Regional Office Administrative Division for safekeeping. Transmittal shall be done not earlier than June 15, 1996 nor later than July 31, 1996. Tax returns transmitted to the Administrative Division will be stored and arranged chronologically by taxable year, and thereafter, alphabetically for ease of retrieval. N. Initial workload determination for every Revenue Officer will be a minimum of ten (10) cases and a maximum of twenty (20) cases. In no case shall the number of cases handled by a Revenue Officer exceed twenty (20) cases at any one time during the year. Each LA is counted as one case. Pending cases covered by Letters of Authority as of June 30, 1996 shall be counted as part of the initial workload of the Revenue Officer. O. The number of tax cases handled by each Revenue Officer involving old pending cases (cases with one year or less before prescription), tax refund/credit cases, cases under reinvestigation, estate and donor's tax cases and cases involving taxpayers retiring from business should not exceed 25 percent of his total number of tax cases at any time during the year. This is to ensure that these cases are given top priority by the Revenue Officers in conducting their audit activities during the year. P. The proportion between individual and corporate taxpayers shall be as follows: 50% individual 50% corporate Q. LAs will not issued and revenue district offices will not initiate audits on tax returns that do not match the selection criteria outlined in this Order. R. New tax cases may be assigned to Revenue Officers only after they have completed and reported the following pending cases with them as of May 31, 1996: 1. prescribing cases/dockets; 2. reinvestigations; and 3. tax refund/credit cases assigned before April 1, 1996. III. 1996 Audit Work Plan The 1996 Audit Work Plan shall run from July 1, 1996 through June 30, 1997. Only cases/dockets with Letters of Authority closed during this period shall be counted towards the accomplishment of the 1996 Audit Work Plan. Review of Forms 19.71 indicates that some confusion exists on how and when to count closures, especially case started during the previous audit plans. Audit closures shall be counted towards completion of the audit plan for the year in which they were closed and not when a case was started. For example, if a case is started in May 1995 (during the 1994 audit program) and is closed in January 1996 (during the 1995 audit program), the closure is counted for the 1995 audit program, not 1994. There is only one audit plan in effect at any given time. Hence, after June 30, 1996, the audit plan shown on Form 19.71 changes from the 1995 audit plan to the 1996 audit plan and closures shall be counted towards completion of that plan. Only the current plan must be shown on Form 19.71. The audit work plan for 1996 for each revenue district office (RDO) (Annex D) is computed using the cumulative data on Line 2 of Page 3 of the February 1996 Form 19.71, "Total Closed Cases/Dockets Year To Date" to project total closed cases for the one year period of July 1995 through June 1996. The audit plan for RDOs for which no data was available from Form 19.71 is computed based on the average percent of audit plan accomplished for RDOs with Form 19.71 data. Using the Form 19.71 data and the number of personnel shown on the 1995 audit plan, a rate or workload factor was computed. This rate was used to compute the 1996 audit plan. The 1995 audit plan established a minimum rate of 22 cases per Revenue Officer or the actual rate for the RDO, whichever was higher. This minimum rate will be retained for the 1996 audit plan. The rate was multiplied by the current number of Revenue Officers performing assessment activities to compute the RDO's audit plan. Group Supervisors at all grade levels were excluded. The number of assessment Revenue Officers was provided to the Assessment Service by the regional offices. Thus, for purposes of illustration, a Revenue District Officer with 20 non-supervisory Revenue Officers and a rate of 22 will have an annual work plan of 440 cases (20 x 22) for 1996. The RDO must complete 440 cases with Letters of Authority in order to accomplish the annual work plan. However, the work plan may be adjusted, either increased or decreased, provided written authorization is secured from the Assistant Commissioner, Assessment Service. (See below.) The 1996 audit plan represents the minimum number of audits that should be completed in 1996, that is from July 1, 1996 through June 30, 1997, consistent with the guidelines in this RMO. The rate represents, on an average, what each Revenue Officer should accomplish during the year; it does not represent the amount of case inventory needed to produce the planned accomplishments. Depending on the efficiency of individual Revenue Officers, the amount of inventory on hand at any time may be equal to or less than the maximum of 20 cases as specified in Section II above. Revenue District Officers and Revenue Regional Directors should perform ongoing workload reviews to ensure that Revenue Officers are effectively managing their inventories and time. The 1996 Audit Work Plan plans for and counts the accomplishment of cases/dockets with Letters of Authority. Data on cases/dockets closed not covered by Letters of Authority will be captured in Section E of the revised Form 19.71. (See Section VI.) The 1996 Audit Work Plan is based on information available as of May 1, 1996. However, circumstances may occur during the audit plan year (July 1996 through June 1997) that may affect the accomplishment of the audit plan. Such circumstances include the increase or decrease of assessment Revenue Officers assigned to the revenue district office or special projects required by the National Office which require the diversion of assessment Revenue Officers form assessment work. In these cases, RDOs shall submit a request for revision, increase or decrease, to the 1996 Audit Work Plan to the Assistant Commissioner, Assessment Service as defined in Section V below. Forms 19.71 showed that several RDOs changed the 1995 Audit Work Plan on the report but did not receive approval from the Assessment Service for the revised plan. Accordingly, these RDOs shall be evaluated based on the work plan shown in RMO 17-95. Similarly, if revisions are not submitted and approved, RDOs shall be evaluated on their ability to accomplish the 1996 plan shown in Annex D. IV. Selection Criteria The most current taxable year filed should be assigned for audit. No audits of taxable year 1994 returns shall be initiated after June 30, 1996. The Revenue District Officer shall draw a list of all taxpayers (Annex B) which fall within the selection criteria set in Section IV.A (Mandatory), Categories C and D and IV.B (Priority Target Population) of this Order and submit the same on or before June 30, 1996 to the Assistant Commissioner, Assessment Service. The list shall state the amount of gross sales or receipts declared by the taxpayer for taxable year 1995, the selection code, the Philippine Standard Industrial Classification (PSIC) code and the corresponding amount of income tax paid for the period. No LA shall be issued by a Revenue District Officer until such list has been submitted. New tax cases will be distributed and assigned to Revenue Officers in accordance with the following instructions: A. Mandatory Category A: 1. Taxpayers retiring from business with gross annual sales or receipts amounting to P5,000,000.00 (Selection Code RET); 2. Claims for VAT refunds exceeding P100,000.00 for the period(s) claimed (VAT); and 3. Claims for tax credit or refund exceeding the threshold under II.B.5 of this Order (TCR). Category B: 1. Taxpayers selected for tax audit based on third party information (Selection Code TPI) and 2. Taxpayers selected for tax audit based on the results of the tax mapping program (MAP). Category C: 1. Taxpayers subject to excise tax (Selection Code EXT) 2. Hotels and Motels (PSIC No. 9820) (HTL) 3. Construction (PSIC Nos. 5011 through 5030) (CON) Category D: 1. Individual (self-employed and/or professional) with gross income/receipts of P2,000,000.00 or above (Selection Code MIN) and 2. Corporations including partnership with gross assets P20,000,000.00 or above (MCO). If the number of taxpayers under this group (Mandatory) exceeds the number of cases in the annual audit work plan for the RDO, the Revenue District Officer will rank taxpayers under Categories C and D and select for audit those from the top (highest income or highest assets) in descending order until the maximum number is reached. The selection criteria are listed in order of priority. Lower priority tax returns will not be audited until all higher priority audits are assigned. (See Section V, Deviation From Policy.) B. Priority Target Population for 1996 If the mandatory audits do not provide sufficient workload for the RDO to accomplish the audit work plan, the Revenue District Officer shall rank and select the taxpayers for audit as follows: 1. Taxpayers with the lowest percentage of tax payment based on gross sales/receipts of the top two industries within the respective areas of jurisdiction of the RDO, using the following formula (Selection Code TOP): (Tax Payment)/(Gross sales or receipts) = percent of tax payment 2. Taxpayers under the following industries (Selection code PTL): Industry PSIC Wholesale and Retail Trade 6110 through 6290 Real Estate 8410 through 8499 Manufacturing of Food, Beverage and Tobacco 3111 through 3149 Manufacturing of Textile, Wearing Apparel and Leather Industries 3211 through 3249 If the desired number still can not be met following the above guidelines, the Revenue District Officer may select from the following industries: Medical, Dental and Other Health and Veterinary Services 9410 through 9420 Agricultural Crop Production 1110 through 1199 Transportation Services 7110 through 7199 Manufacture of Chemicals and Chemical, Petroleum Coal, Rubber and Plastic Products 3511 through 3560 The selection criteria are listed in the order of priority. The taxpayers to be selected for audit for the industries listed above shall be those falling in the lowest 10 percent of the list in terms of tax compliance. Tax compliance shall mean the ratio of tax due per return as against gross sales/income. 3. Revenue District Officer's Discretion (Selection Code RDO) The Revenue District Officer is given the opportunity to select taxpayers which do not fall within the guidelines established above but the total selected audit candidates shall not exceed five (5) percent of the annual work plan assigned to the RDO. V. Deviation from Policy Since this RMO can not cover all possible situations of revenue district offices throughout the country, deviations from these policies may be allowed but only upon prior written authorization from the Assistant Commissioner, Assessment Service as recommended by the Revenue Regional Director. Deviations include increase or decrease to the number of cases in the audit work plan resulting from increase or decreases in the number of Revenue Officers in the Assessment Section of revenue district offices during the 12-month period from July 1, 1996 through June 30, 1997. Any unauthorized deviation from this policy and instruction will result in the filing of appropriate administrative charges and revocation of authority to issue Letters of Authority. In this regard, the Revenue Regional Directors may recommend to the Commissioner the relief, re-assignment or transfer within the region of any Revenue District Officer violating the instructions prescribed in this Order. The Revenue Regional Directors may also recommend to the Commissioner the replacement for Revenue District Officers removed for non-compliance with this Order. VI. Reporting Requirements In order that uniform information will be-submitted by RDOs, monthly reports are required using revised BIR Form 19.71 (Annex C), containing the total number of dockets closed during the month segregated by tax year, type of tax and Audit Work Plan Selection Codes. The Audit Work Plan Selection Codes established under RMO Nos. 26-94 and 17-95 shall continue to be used for 1996. Also new selection codes have been established for the 1996 Audit Program. Form 19.71 shall be submitted directly to the Assistant Commissioner, Assessment Service not later than the 10th day of the following month. A copy of Form 19.71 shall also be submitted to the Revenue Regional Director. A new section (Section E) was added to Form 19.71 to capture data on closed cases/dockets not covered by Letters of Authority. The report summary of Form 19.71 will show cases closed during the month with Letters of Authority on Lines 1 through 4 and without Letters of Authority on Lines 5 and 6. Cumulative figures are required for both types of cases/dockets. For the 1996 Audit Program, the twelve-month reporting period will begin on July 1, 1996 and end on June 30, 1997. Accomplishment of the 1996 Audit Plan (Annex D) will be based on the number of closed cases as reflected on Line 2 of Form 19.71 The "Year To Date" lines (Lines 2 and 6) on Form 19.71 should start with July 1996 closures. Only revised Forms 19.71 shall be completed by RDOs starting July 1996. Prior versions of Form 19.71 are obsolete. Instructions for the accomplishment of BIR Form 19.71 are attached herewith as part of Annex C. Form 19.64S, Inventory of Pending Cases/Dockets, shall be submitted directly to the Assistant Commissioner; Assessment Service not later than the 10th day of the following month. A copy of Form 19.64S shall also be submitted to the Revenue Regional Director. Forms 1717, Revenue Officer's Report, shall be submitted by the regional Assessment Divisions. The regional Assessment Division shall detach a copy of Form 1717 from the docket and transmit the same directly to the Assessment Service, Attention: Audit Data Bank Division, within five (5) days after receipt of the docket from the RDO. Forms 1717 will be prepared by the Revenue Officer conducting the audit at the RDO and will be included with the docket for review by the Assessment Division. VII. Repealing Clause Revenue Memorandum Order Nos. 17-95 and 26-94 and Section III.B.2.4 of Revenue Administrative Order No. 10-95 and all other issuances inconsistent herewith are hereby modified or repealed accordingly. VIII. Effectivity This Order Shall take effect on July 1, 1996. However, for purposes of transmittal of tax returns under Section II.M and submission of the report required under Section IV hereof, this Revenue Memorandum Order shall be effective beginning June 1, 1996. A Certification of Satisfactory Completion of Priority Works per Revenue Memorandum Order No. 70-94 is still required before the RDO can commence audit activity. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue ANNEX A1 Revenue Region No. ___ ___________________ RDO No. ______ ___________________ Return Verification Order RVO-C- ________ To: Revenue Officer/s __________ Thru Group Supervisor _______ Referred to you for verification and processing the attached Capital Gains Tax Return of _________________ filed on __________________. (taxpayer) Your are hereby directed to submit immediately a complete report on the above stated case. ___________________ Revenue District Officer Received By : _____________ Review Officer/s _____________ Group Supervisor ANNEX A2 Revenue Region No. ___ ___________________ RDO No. ______ ___________________ Return Verification Order RVO-E- ________ To: Revenue Officer/s __________ Thru Group Supervisor _______ Referred to you for verification and processing the attached Estate Tax Return of _________________ filed on __________________. (taxpayer) Your are hereby directed to submit immediately a complete report on the above stated case. ___________________ Revenue District Officer Received By : _____________ Review Officer/s _____________ Group Supervisor ANNEX A3 Revenue Region No. ___ ___________________ RDO No. ______ ___________________ Return Verification Order RVO-D- ________ To: Revenue Officer/s __________ Thru Group Supervisor _______ Referred to you for verification and processing the attached Donor's Tax Return of _________________ filed on __________________. (taxpayer) Your are hereby directed to submit immediately a complete report on the above stated case. ___________________ Revenue District Officer Received By: _____________ Review Officer/s ______________ Group Supervisor ANNEX A4 Revenue Region No. ___ ___________________ RDO No. ___________ ___________________ Return Verification Order RVO-P- ___________ To : Revenue Officer/s _____________ Thru Group Supervisor __________ Referred to you for reinvestigation and appropriate action the attached protest letter of ____________________ with address at _____________ covering the _____________ tax liability/ies for the period ___________. You are hereby directed to submit immediately a complete report on the above-stated case. ___________________ Revenue District Officer Received By : _____________ Revenue Officer/s _____________ Group Supervisor ANNEX A5 Revenue Region No. ___ ___________________ RDO No. ______ ___________________ Return Verification Order RVO-R- ________ To: Revenue Officer/s __________ Thru Group Supervisor _______ Referred to you for verification and processing the attached Income Tax Return for the period ____________ of __________________ who is (taxpayer) retiring from business on ____________. Your are hereby directed to submit immediately a complete report on the above stated case. ___________________ Revenue District Officer Received By: _____________ Review Officer/s _____________ Group Supervisor ANNEX A6 Revenue Region No. ___ ___________________ RDO No. ______ __________________ Return Verification Order RVO-R/C- ________ To: Revenue Officer/s __________ Thru Group Supervisor _______ Referred to you for verification and processing are the creditable/refundable income tax returns for the year ________ of the following taxpayers: Name of Taxpayer Tax Identification No. Address a. b. c. d. e. You are hereby directed to submit immediately a complete report on the above-stated cases. ___________________ Revenue District Officer Received By : _____________ Review Officer/s _____________ Group Supervisor ANNEX B Revenue Region No. ____ __________________ Revenue District Office No. ____ __________________________ List of Taxpayers Selected for Audit ANNEX C Instructions for BIR Form 19.71 1. BIR Form 19.71 will be completed monthly by revenue district offices in triplicate. The form is a district-wide summary of the cases/dockets closed by individual revenue officers. The original form will be forwarded to the Assistant Commissioner, Assessment Service, one copy will be sent to the revenue region, and one copy will be retained by the revenue district office. The form will be completed and forwarded to the national office and regional office by the 10th day of the month following the reporting period. 2. BIR Form 19.71 is divided into five sections. Sections A through D apply to closed cases/dockets with Letters of Authority. Section E applies to closed cases/dockets without Letters of Authority. income tax individuals including withholding returns income tax corporations and partnerships including withholding returns value-added tax and excise tax estate tax and donor's tax closed cases not covered by Letters of Authority The sections on income tax returns also include withholding tax investigations. Each Letter of Authority issued is counted as one audit. Under the package audit concept, Letters of Authority are applicable to all types of tax. In the event an excise tax return or a VAT return is audited before the filing of the annual income tax return, the Letter of Authority will be issued for the applicable tax type (VAT or Excise). 3. Specific Instructions for BIR Form 19.71 Note : Form 19.71 has been revised to include the new Audit Work Plan Selection Codes for the 1996 Audit Plan. Additionally, a new section of the report has been added. This selection captures data on closed cases not covered by Letters of Authority. The new section replaces the Column "Others" on the previous version of Form 19.71. Heading Enter the revenue district office number and name and the month covered by the report. Column 1 Tax Year Information on reported cases (dockets) will be provided by tax year. Tax years 1996, 1995, 1994 and 1993 will be shown on separate lines. Data for tax years 1992 and prior years will be combined and entered on single line. Column 2 Total Reported Dockets Enter the total number of dockets/cases closed during the month including original and reinvestigation audits. For purposes of this report, a docket is considered closed when it is forwarded to management for review (i.e. group supervisor or Chief, Assessment Unit). The data in this column should match the total of the data in Columns 4a and 4b of BIR Form 19.64S. Column 3 Breakdown of Closed Cases/Dockets This column break down the number of original audit investigation closed cases/dockets based on the Audit Work Plan Selection Code. The Audit Work Plan Selection Codes are outlined below and in the Revenue Memorandum Order describing the annual audit work plan. Note: Not all selection codes are applicable to each section of the report. Enter the total cases/dockets closed based on the selection code in each of the applicable columns. Each closed case will be entered in only one column. Column 3a Enter the number of pending prescribed years ( PPY ) cases closed during the month in this column. For 1996, these are tax years 1992 and prior pending in inventory as of June 30, 1996 that were not previously assigned an Audit Work Plan Section Code. 1992 and prior tax years already assigned a selection code, for example, TPI for Third Pay Information audits, will retain that selection code and will be reported under the applicable column. Column 3b Enter the number of tax refund/TCC ( TCR ) cases closed during the month in this column. Column 3c Enter the number of other pending cases closed ( OPY ) cases closed during the month in this column. For 1996, these are tax years 1993 and later pending in inventory as of June 30, 1996 that were not previously assigned an Audit Work Plan Selection Code. 1993 and later tax years already assigned a selection code, for example, TPI for Third Party Information audits, will retain that selection code and will be reported under the applicable column. Column 3d Enter the number of mandatory individual return ( MIN ) audits that were closed during the month. MIN audits are individual returns (self-employed and/or professional) with P2,000,000 or more in gross income/receipts. Column 3e Enter the number of mandatory corporate return ( MCO ) audits that were closed during the month. MCO audits are corporate returns including partnerships with P20,000,00 or more in gross assets. Column 3f Enter the number of third party information ( TPI ) audits that were closed during the month. Column 3g Enter the number of priority target population audits closed during the month that were in the top ten percent of the target population ( PTT ). The priority target populations are outlined in RMO 17-95, Audit Program for 1995. The top ten percent is based on gross sales/gross receipts. Column 3h Enter the number of priority target population audits closed during the month that were in the bottom ten percent of the target population ( PTB ). The priority target populations are outlined in RMO 17-95, Audit Program for 1995. The bottom ten percent is based on gross sales/gross receipts. Column 3i Enter the number of priority population audits closed during the month that had no change in gross sales/gross receipts compared to the previous year ( PTN ). The priority target populations are outlined in RMO 17-95, Audit Program for 1995. No change in gross sales/gross receipts is defined as a change of 20 percent or less compared to the previous year. This applies to changes that are positive or negative. Column 3j Enter the number of audits closed during the month that were selected on the recommendation of the Revenue District Officer ( RDO ). Total audits selected in this category can not exceed five (5) percent of the Annual Audit Work Plan. Column 3k Enter the number of audits closed during the month for taxpayers retiring from business with annual gross sales/receipts of P5,000,000 or more ( RET ) Column 3l Enter the number of audits closed during the month for claims for VAT refunds exceeding P100,000 for the period(s) claimed ( VAT ). Column 3m Enter the number of audits closed during the month for taxpayers selected for audit based on the results of the tax mapping program ( MAP ). Column 3n Enter the number of audits closed during the month for the taxpayers subject to excise tax ( EXT ). Note: Audits of excise tax returns may occur before the filing of the annual income tax return. In those instances, the audit of the excise tax return would be shown in Section C, Value Added Tax and Excise Tax. If the audit of the excise tax returns occurs as part of a package audit originating with the audit of the income tax return of the taxpayer, the audit would be noted in Section A or Section B, Income Tax (Individual or Corporate). Column 3o Enter the number of audits closed during the month for taxpayers engaged in the Hotel and Motel industry (PSIC Number 9820) ( HTL ). Column 3p Enter the number of audits closed during the month for taxpayers engaged in the construction industry (PSIC Numbers 5011 through 5030) ( CON ). Column 3q Enter the number of audits closed during the month for taxpayers with the lowest percentage of tax payment based on gross sales/receipts for the top industries within the RDO ( TOP ). Column 3r Enter the number of audits closed during the month for priority target populations taxpayers, as defined in the 1996 Audit Program, that were in the bottom 10 percent in terms of tax compliance ( PTL ). Tax compliance means the ratio of tax due per return compared to gross sales/income. Column 3s Enter the number of audits closed during the month for estate tax returns for which Letters of Authority were issued per Section II.B.1 of the Revenue Memorandum Order describing the annual audit work plan ( EST ). Column 3t Enter the number of audits closed during the month for donor's tax returns for which Letters of Authority were issued per Section II.B.1 of the Revenue Memorandum Order describing the annual audit work plan ( DON ). Column 4 Enter the number of reinvestigations closed during the month. Note: The sum of Columns 3 and Column 4 should equal Column 2. Breakdown of Closed Cases/Dockets Not Covered by Letters of Authority Column 1 Tax Year Information on reported cases (dockets) will be provided by tax year. Tax year 1996, 1995, 1994, and 1993 will be shown on separate lines. Data for tax years 1992 and prior years will be combined and entered on single line. Column 5 Total Reported Dockets Enter the total number of dockets/cases closed during the month not covered by Letters of Authority. For purposes of this report, a docket is considered closed when it is forwarded to management for review (i. e. group supervisor or Chief, Assessment Unit). Column 6a Enter the number of capital gains tax return ( CGT ) audits not covered by Letters of Authority that were closed during the month in this column. Column 6b Enter the number of estate tax return ( EST ) audits not covered by Letters of Authority that were closed during the month in this column. Column 6c Enter the number of donors tax return ( DON ) audits not covered by Letters of Authority that were closed during the month in this Column. Column 6d Enter the number of audits not covered by Letters of Authority closed during the month for taxpayers retiring from business where the annual gross sales/receipts was less than P5,000,000 ( RET ) in this column. Column 6e Enter the number of protested cases ( PRO ) not covered by Letters of Authority that were closed during the month in this column. Column 6f Enter the number of VAT refund ( VAT ) audits not covered by Letters of Authority that were closed during the month in this column. Column 6g Enter the number of tax refund/TCC ( TCR ) audits not covered by Letters of Authority that were closed during the month in this column. Report Summary Line 1 Enter the total number of cases/dockets closed this month with Letters of Authority. (Sum of Column 2, Sections A through D.) Line 2 Enter the total number of closed cases/dockets year to date (July 1, 1996 through the current month) with Letters of Authority. Line 3 Enter the Annual Audit Work Plan for 1996 as shown in Annex D for the revenue district office. Line 4 Enter Line 2 as a percent of Line 3. Line 5 Enter the total number of cases/dockets closed this month without Letters of Authority. (Sum of Column 5, Section E.) Line 6 Enter the total number of cases/dockets closed year to date (July 1, 1996 through the current month) without Letters of Authority. Approval The revenue district officer or his delegate will review BIR Form 19.71 for completeness and accuracy, including comparing the data in Column 2 with the data in Column 4 of BIR Form 1964S. The approving official will sign the Form 19.71 certifying its correctness. The title and BIR employee number of the approving official will be entered in addition to the date that the form was approved. BIR Form 19.71 will be submitted directly to the Assistant Commissioner (Assessment Service) not later than 10th day of the following month with a copy furnished to the Revenue Regional Director. 4. The data on this form will be periodically checked for accuracy by BIR employees from the national office and the regional office. Timeliness of submission and accuracy of this form and all other BIR management information reports will be considered during the performance evaluation of revenue district officers. Annex D 1996 Audit Work Plan For the Period July 1, 1996 through June 30, 1997 Rundate: 05-Jun-96 Revenue Number 1996 ___ Revenue District Office ___ Region of Revenue Workload Audit Name Name Number Officers Factors Plan RR# 1 Baguio City 1 Laoag City 1 4 80 320 2 Vigan, Ilocos Sur 1 5 22 110 3 San Fernando, La Union 1 10 71 710 4 Calasiao, West Pangasinan 1 16 50 800 5 Alaminos, West Pangasinan 1 9 22 198 6 Urdaneta, East Pangasinan 1 10 22 220 Revenue Region Total 2,358 RR# 2 Cordillera Administrative Region 7 Bangued, Abra 2 1 80 80 8 Baguio City 2 8 22 176 9 La Trinidad, Benguet 2 7 22 154 10 Bontoc, Mt. Province 2 0 22 0 11 Tabuk, Kalinga-Apayao 2 3 22 66 12 Lagawe, Ifugao 2 1 36 36 Revenue Region Total 512 RR# 3 Tuguegarao, Cagayan 13 Tuguegarao, Cagayan 3 11 22 242 14 Bayombong, Nueva Vizcaya 3 3 58 174 15 Ilagan, Isabela 3 21 30 630 16 Cabarroguis, Quirino 3 1 51 51 Revenue Region Total 1,097 RR# 4 San Fernando, Pampanga 17 Tarlac, Tarlac 4 16 31 496 18 Olongapo City 4 6 22 132 19 Iba, Zambales 4 2 22 44 20 Balanga, Bataan 4 10 67 670 21 San Fernando, Pampanga 4 34 22 748 22 Baler, Aurora 4 3 22 66 23 Cabanatuan City 4 24 22 528 Revenue Region Total 2,684 RR# 5 Valenzuela 24 Valenzuela 5 45 22 990 25 Malolos, Bulacan 5 29 22 638 26 Malabon Navotas 5 21 69 1,449 27 Caloocan City 5 48 22 1,056 Revenue Region Total 4,133 RR# 6 Manila 29 San Nicolas-Tondo 6 65 22 1,430 30 Binondo 6 54 22 1,188 31 Santa Cruz 6 63 38 2,394 32 Quiapo-Sampaloc-San Miguel 6 41 53 2,173 33 Intramuros-Ermita-Malate 6 39 22 858 34 Paco-Pandacan-Santa Ana 6 31 22 682 35 Romblon 6 3 65 195 36 Puerto Princesa 6 3 22 66 37 San Jose, Occidental Mindoro 6 1 22 22 Revenue Region Total 9,008 RR# 7 Quezon City 28 Novaliches 5 37 22 814 38 North Quezon City 7 73 22 1,606 39 South Quezon City 7 67 22 1,474 40 Cubao 7 58 34 1,972 41 Mandaluyong 7 66 22 1,452 42 San Juan 7 47 22 1,034 43 Pasig 7 72 22 1,584 45 Marikina 7 43 22 946 46 Cainta-Taytay 7 28 22 616 Revenue Region Total 11,498 RR# 8 Makati 44 Taguig-Pateros 7 31 22 682 47 East Makati 8 38 22 836 48 West Makati 8 31 22 682 49 North Makati 8 28 22 616 50 South Makati 8 33 22 726 51 Pasay City 8 29 24 696 52 Paraaque 8 30 39 1,170 53 Las Pias-Muntinlupa 8 24 22 528 Revenue Region Total 5,936 RR#9 San Pablo City 54 Trece Martinez City 8 10 22 220 55 San Pablo City 9 16 44 704 56 Calamba, Laguna 9 13 22 286 57 San Pedro, Laguna 9 15 38 570 58 Batangas City 9 14 22 308 59 Lipa City 9 6 42 252 60 Lucena City 9 9 33 297 61 Gumaca, Quezon 9 3 74 222 62 Boac, Marinduque 9 4 22 88 63 Calapan, Oriental Mindoro 9 4 22 88 Revenue Region Total 3,035 RR#10 Legazpi City 64 Daet, Camarines Norte 10 5 46 230 65 Naga City 10 12 43 516 66 Iriga City 10 5 22 110 67 Legazpi City 10 19 34 646 68 Sorsogon, Sorsogon 10 6 31 186 69 Virac, Catanduanes 10 5 22 110 70 Masbate, Masbate 10 7 22 154 Revenue Region Total 1,952 RR#11 Iloilo City 71 Kalibo, Aklan 11 4 41 164 72 Roxas City 11 5 22 110 73 San Jose, Antique 11 3 22 66 74 Iloilo City 11 19 22 418 75 Barotac Nuevo, Iloilo 11 6 22 132 Revenue Region Total 890 RR#12 Bacolod City 76 Victorias, Negros Occ. 12 9 22 198 77 Bacolod City 12 25 24 600 78 Binalbagan, Negros Occ. 12 9 22 198 79 Dumaguete City 12 6 65 390 Revenue Region Total 1,386 RR#13 Cebu City 80 Mandaue City 13 20 25 500 81 Cebu City 13 33 24 792 82 Cebu City South 13 16 22 352 83 Talisay, Cebu 13 10 22 220 84 Tagbilaran City 13 6 23 138 Revenue Region Total 2,002 RR#14 Tacloban City 85 Catarman, Northern Samar 14 2 22 44 86 Borongan, Eastern Samar 14 4 22 88 87 Catbalogan, Western Samar 14 4 22 88 88 Tacloban City 14 12 27 324 89 Ormoc City 14 9 22 198 90 Maasin Southern Leyte 14 5 22 110 Revenue Region Total 852 RR#15 Zamboanga City 91 Dipolog City 15 3 22 66 92 Pagadian City 15 6 22 132 93 Zamboanga City 15 16 22 352 94 Isabela, Basilan 15 3 554 1,662 95 Jolo, Sulu 15 2 51 102 96 Bongao, Tawi-Tawi 15 2 41 82 Revenue Region Total 2,396 RR#16 Cagayan de Oro City 97 Gingoog City 16 5 80 400 98 Cagayan de Oro City 16 21 22 462 99 Malaybalay, Bukidnon 16 6 22 132 100 Ozamis City 16 7 29 203 101 Iligan City 16 11 23 253 102 Marawi City 16 1 22 22 Revenue Region Total 1,472 RR#17 Butuan City 103 Butuan City 17 9 22 198 104 Bayugan, Agusan del Sur 17 8 22 176 105 Surigao City 17 7 24 168 106 Tandag, Surigao del Sur 17 8 22 176 Revenue Region Total 718 RR#18 Cotabato City 107 Cotabato City 18 13 22 286 108 Kidapawan, North Cotabato 18 6 22 132 109 Tacurong, Sultan Kudarat 18 17 22 110 110 General Santos City 18 17 23 391 111 Koronadal, South Cotabato 18 5 27 135 Revenue Region Total 1,054 RR#19 Davao City 112 Tagum, Davao del Norte 19 10 22 220 113 Davao City 19 33 39 1,287 114 Mati, Davao Oriental 19 4 22 88 115 Digos, Davao del Sur 19 8 24 192 Revenue Region Total 1,787 Total Audit Plan for 1996 1,959 54,770 Annex E _____________ Date The Revenue District Officer Revenue District No._______ _______________________ Re: Estate/Donor's Tax Return of __________________________ This is to confirm issuance of a Termination Letter dated _____________ on the investigation/verification of the estate/donor's tax return of the above-stated taxpayer with the following information: Gross taxable estate/donation P__________ Estate/donor's tax paid upon filing of return ___________ Deficiency estate/donor's tax paid upon investigation/verification ___________ ATAP No. ___________ Date of ATAP ___________ Real properties covered by the investigation/verification: Land Improvements Location of Area in FMV per Tax Zonal FMV per Tax Adjusted Classification Sq. M. Declaration Value Declaration Value Property _______________ Regional Director Revenue Region No. ___ By: _______________ Chief, Assessment Division