Allowing for Short-Period or Issue-Based Audit in the Current Year as a Result of Findings Obtained from Surveillance/Stocktaking Activities

July 30, 2007 REVENUE MEMORANDUM ORDER NO. 18-07 SUBJECT : Allowing for Short-Period or Issue-Based Audit in the Current Year as a Result of Findings Obtained from Surveillance/Stocktaking Activities TO : All Revenue Officers and Others Concerned I. Objective In recent months, the Bureau has been tireless in its efforts to embark on several projects that are aimed to expand the tax base and boost the collection effort by capturing as many unregistered taxpayers as possible, and by curbing the unfavorable decline in tax collections through the employment of certain tools designed to determine the level of tax compliance amongst taxpayers. HaEcAC The undertaking of surveillance activities as well as stocktaking of inventory of certain businesses have thus become an effective tool by which to establish certain parameters to gauge or compare the voluntary declarations of taxpayers in their tax returns as against what would normally be expected from their operations as observed during the period of surveillance/stocktaking. Currently, the BIR has embarked on several projects that allow the employment of surveillance and/or stocktaking of inventory of businesses conducted based on validly issued Mission Orders (MOs) which are issued to evidence legitimacy of the surveillance/stocktaking activities. These activities are mainly an offshoot of the findings and reports generated from the " Premyo sa Resibo " program, NO OR Complaint Program, Benchmarking Project as well as from confidential information furnished by third parties, data gathered by the BIR from third party, and those collected by the investigating Office from its own initiated activities to check compliance of taxpayers with the tax laws, rules and regulations. HScaCT Inasmuch as the surveillance/stocktaking activities cover the months/quarters in the current year for which there is a need to corroborate findings obtained from the same with the returns filed by the taxpayer during the same current period, this Order is, thus, issued allowing the conduct of short-period or issue-based audit in the current year provided that the same is covered by a validly issued Letter of Authority. II. Policies 1. The resulting factual findings obtained during the surveillance/stocktaking activities shall be analyzed, reconciled with the current books of accounts/accounting records of the concerned taxpayer by the assigned revenue officers and shall be compared with the latest final returns (whether income and/or VAT) filed by such taxpayer to determine the existence of discrepancies. 2. If there are deficiencies established, short period audit or issue-based audit under a duly issued Letter of Authority (LA) covering the final returns (whether income and/or VAT) of the current year may be conducted to corroborate, validate and supplement the resulting discrepancies initially determined as a result of the surveillance or stocktaking activities. Deficiency assessments may then be issued for those discrepancies that have remained unsubstantiated or undisputed by the taxpayer. EISCaD 3. All existing revenue rules, processes and procedures with respect to surveillance/stocktaking activities undertaken and the manner and procedures for the issuance of LA as well as the disposition of cases under audit/investigation for assessment and/or collection shall apply. III. Effectivity Clause This Order shall take effect immediately. (SGD.) LILIAN B. HEFTI OIC-Commissioner of Internal Revenue