Amendments to Field Circular No. V-136 Relative to the Procedure in the Classification of Income Tax Returns

June 29, 1965 REVENUE MEMORANDUM ORDER NO. 19-65 SUBJECT : Amendments to Field Circular No. V-136 Relative to the Procedure in the Classification of Income Tax Returns TO : All Internal Revenue Officers and Others Concerned In order to update the procedure in the classification of income tax returns for investigation, the following amendments to Field Circular No. V-136 dated September 10, 1959, in so far as it affects classification of returns, are hereby promulgated for the guidance of all concerned: CLASSIFICATION OF RETURNS After the returns have been processed in accordance with established procedures, the duplicate income tax returns should be sorted, segregated and classified in the Income and Business Tax Branch in accordance with the following: I. GENERAL CLASSIFICATION A. Field Audit All returns selected hereunder shall be considered for automatic field investigation and shall be stamped "FIELD" on the upper right hand margin of the return. 1. Individual returns (BIR Form No. 17.01 and 17.01-A) a. Regional Offices Nos. 4, 5 and 6 (1) Business or professional income (Schedule B) with gross receipts in excess of P50,000.00. (2) Farming income (Schedule C) with gross receipts in excess of P10,000.00. (3) Income from capital asset transactions (Schedule D) with gross receipts in excess of P10,000.00 (4) Rental income (Schedule E) with gross receipts in excess of P10,000.00 b. Other Regional Offices (1) Business or professional income with gross receipts in excess of P20,000.00 (2) Farming income (Schedule C) with gross receipts in excess of P5,000.00 (3) Income from capital asset transactions (Schedule D) with receipts in excess of P5,000.00 (4) Rental income (Schedule E) with gross receipts in excess of P5,000.00 2. Corporation, partnership and insurance company returns (BIR Form Nos. 17.02, 17.03 and 17.04) a. Regional Offices Nos. 4, 5 and 6 (1) Taxable corporation and insurance company returns with aggregate gross receipts in excess of P50,000.00 cdt (2) Exempt corporation and insurance company returns with aggregate gross receipts in excess of P100,000.00 (3) Partnership returns with aggregate gross receipts in excess of P50,000.00 b. Other Regional Offices (1) Taxable corporation and insurance company returns with aggregate gross receipts in excess of P20,000.00 (2) Exempt corporation and insurance company returns with aggregate gross receipts in excess of P50,000.00 (3) Partnership returns with aggregate gross receipts in excess of P20,000.00 3. Withholding Tax at Source Returns (BIR Form No. 17.43) All returns of this kind are to be automatically classified for field investigation and should be stamped "FIELD" on the upper right hand margin of the return. B. Office Audit All returns selected under this classification shall be stamped with "OFFICE AUDIT" in the upper right hand margin of the return. 1. Individual returns a. Regional Offices Nos. 4, 5 and 6 (1) Salary income (Schedule A) with or without W-2 claiming traveling, representation and entertainment expenses and/or other deductions which appear to be excessive or which amount to more than 30% of gross income. (2) Business or professional income (Schedule B) with gross receipts not exceeding P50,000.00 (3) Farming income (Schedule C) with gross receipts not exceeding P10,000.00 (4) Income from capital asset transactions (Schedule D) with gross receipts not exceeding P10,000.00 (5) Rental income (Schedule E) with gross receipts not exceeding P10,000.00 b. Other Regional Offices (1) Salary income (Schedule A) with or without W-2 claiming traveling, representation and entertainment expenses and/or other deductions which appear to be excessive or which amount to more than 30% of gross income. (2) Business or professional income (Schedule B) with gross receipts not exceeding P20,000.00 (3) Farming income (Schedule C) with gross receipts not exceeding P5,000.00 (4) Income from capital asset transaction (Schedule D) with gross receipts not exceeding P5,000.00 (5) Rental income (Schedule E) with gross receipts not exceeding P5,000.00 2. Corporation, partnership and insurance company returns a. Regional Offices Nos. 4, 5 and 6 (1) Taxable corporation and insurance company returns with aggregate gross receipts not exceeding P50,000.00 (2) Exempt corporation and insurance company returns with aggregate gross receipts not exceeding P100,000.00 (3) Partnership returns with aggregate gross receipts not exceeding P50,000.00 b. Other Regional Offices (1) Taxable corporation and insurance company returns with aggregate gross receipts not exceeding P20,000.00 (2) Exempt corporation and insurance company returns with aggregate gross receipts not exceeding P50,000.00 (3) Partnership returns with aggregate gross receipts not exceeding P20,000.00 C. Individual returns showing income from registered general partnerships. Returns owing income from registered general partnerships are to be classified as a separate group irrespective of whether the return shows income from business, farming, rentals or salaries. D. Returns For Filing Returns falling under this classification may be accepted as filed and stamped "REVISED" on the upper right hand margin of the return. (1) Individual returns showing salary income and claiming optional standard deduction. (2) Individual returns showing very small income from other sources and claiming a big amount of personal and additional exemptions, which in the opinion of the reviewer need no office audit. (3) All returns showing only dividend or interest income and claiming optional standard deduction or no deduction at all. II. SPECIFIC CLASSIFICATION When the income tax returns have been selected in accordance with the procedure outlined in the preceding paragraph, they should be further classified into the following: A. Class A (Difficult) 1. Regional Offices Nos. 4, 5 and 6 a. Individual returns with gross receipts from business or profession (Schedule B) in excess of P500,000.00 b. Individual returns with gross receipts from farming (Schedule C) in excess of P100,000.00 c. Individual returns with gross receipts from capital asset transactions (Schedule D) in excess of P50,000.00. d. Individual returns with gross receipts from rents and royalties (Schedule E) in excess of P75,000.00 cdt e. Corporation, insurance company (taxable and exempt) and partnership returns with aggregate gross receipts in excess of P500,000.00. 2. Other Regional Offices a. Individual returns with gross receipts from business or profession (Schedule B) in excess of P300,000.00. b. Individual returns with gross receipts from farming (Schedule C) in excess of P100,000.00. c. Individual returns with gross receipts from capital asset transactions (Schedule D) in excess of P30,000.00. d. Individual returns with gross receipts from rents and royalties (Schedule E) in excess of P50,000.00. e. Corporation, insurance company returns (taxable and exempt) and partnership returns with aggregate gross receipts in excess of P300,000.00. B. Class B (Average) 1. Regional Offices Nos. 4, 5 and 6 a. Individual returns with gross receipts from business or profession (Schedule B) in excess of P200,000.00 but not more than P500,000.00. b. Individual return with gross receipts from farming (Schedule C) in excess of P50,000 but not more than P100,000.00. c. Individual returns with gross receipts from capital asset transactions (Schedule D) in excess of P30,000.00 but not more than P50,000.00. d. Individual returns with gross receipts from rents and royalties (Schedule E) in excess of P30,000.00 but not more than P75,000.00. e. Corporation, insurance company (taxable and exempt) and partnership returns with aggregate receipts in excess of P200,000.00 but not more than P500,00.00. f. Withholding Tax At Source Returns 2. Other Regional Offices a. Individual returns with gross receipts from business or profession (Schedule B) in excess of P150,000.00 but not more than P300,000.00. b. Individual returns with gross receipts from farming (Schedule C) in excess of P50,000.00 but not more than P100,000.00. c. Individual returns with gross receipts from capital asset transactions (schedule D) in excess of P15,000.00 but not more than P30,000.00. d. Individual returns with gross receipts from rents and royalties (Schedule B) in excess of P30,000.00 but not more than P50,000.00. e. Corporation, insurance company (taxable and exempt) and partnership returns with aggregate gross receipts in excess of P150,000.00 but not more than P300,000.00. f. Withholding Tax at Source Returns C. Class C (Easy) 1. Regional Offices Nos. 4, 5 and 6 a. Individual returns with gross receipts from business or profession (Schedule B) in excess of P50,000.00 but not more than P200,000.00. b. Individual returns with gross receipts from farming (Schedule C) in excess of P10,000.00 but not more than P50,000.00. c. Individual returns with gross receipts from capital assets transactions (Schedule D) in excess of P10,000.00 but not more than P30,000.00. d. Individual returns with gross receipts from rents and royalties (Schedule E) in excess of P10,000.00 but not more than P30,000.00. e. Taxable corporation and insurance company returns with aggregate gross receipts in excess of P50,000.00 but not more than P200,000.00. f. Exempt corporation and insurance company returns with aggregate gross receipts in excess of P100,000.00 but not more than P200,000.00. g. Partnership returns with aggregate gross receipts in excess of P50,000.00 but not more than P200,000.00. 2. Other Regional Offices a. Individual returns with gross receipts from business or profession (Schedule E) in excess of P20,000.00 but not more than P150,000.00. b. Individual returns with gross receipts from farming (Schedule C) in excess of P5,000.00 but not more than P50,000.00. c. Individual returns with gross receipts from capital asset transactions (Schedule D) in excess of P5,000.00 but not more than P15,000.00. d. Individual returns with gross receipt from rentals and royalties (Schedule E) in excess of P5,000.00 but not more than P30,000.00. e. Taxable corporation and insurance company returns with aggregate gross receipts in excess of P20,000.00 but not more than P150,000.00. f. Exempt corporation and insurance company returns with aggregate gross receipts in excess of P50,000.00 but not more P150,000.00. g. Partnership returns with aggregate gross receipts in excess of P20,000.00 but not more than P150,000.00. III. MISCELLANEOUS PROVISION A. Individual returns showing income in more than one schedule and the gross receipts thereon are classifiable under different classes, should be classified in the highest class to which the gross receipts fall. Thus, if the return is to be classified as a Class A return on the basis of the gross receipts from business but a Class C return on the basis of the farming income, the return should be classified as a Class A return, the highest class to which the return may be classified if the income schedules are to be taken up separately. B. Returns classified as office audit returns in the general classification should automatically be classified as Class C returns in regional offices where office audit is not practical or an established procedure. C. Regional Offices are authorized to organize an office audit section in the Income and Business Tax Branch, if there are sufficient examiners in the branch to handle office and review work. D. The Office Audit section should limit the investigation of office audit returns to those returns classified for office audit purposes whose addresses are within the limits of the City or Municipality, as the case may be, where the Regional Office is located. E. Returns that have been classified for office audit whose addresses are outside the station town of the Regional Office are to be considered and classified as Class C returns and should be transmitted to the corresponding Chief Revenue Officer for field investigation. F. The provisions of this memorandum order shall become effective beginning with the 1964 income tax returns. (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue APPROVED: (SGD.) RUFINO G. HECHANOVA Secretary of Finance