Accomplishment of the Review Sheet for Every Report of Investigation on Income Tax

June 21, 1977 REVENUE MEMORANDUM ORDER NO. 25-77 SUBJECT : Accomplishment of the Review Sheet for Every Report of Investigation on Income Tax TO : All Internal Revenue Officers and Others Concerned In order to facilitate spotting possible irregularities in the processing and review of income tax investigation reports and to be able to efficiently and effectively compile statistical data on the different lines of business for the purpose of using the same as basis for the formulation of audit policies, guidelines, and procedures, the attached Review Sheet is hereby prescribed to be accomplished by the examiner and attached to every income tax report of investigation of taxpayers engaged in business and all other taxpayers so far as applicable beginning July 15, 1977. A . Procedure The Review Sheet shall be prepared in duplicate by the examiner investigating any income tax case and shall always be attached on top of every docket. The following guidelines shall be followed in the preparation of the review sheet: 1. Indicate the name, taxpayer account number and address of the taxpayer in the spaces indicated. 2. Be specific with regards to the filling up of blanks for kind of business and the product line. Examples: Kind of Business Product line Trading (wholesaler) Hardware Trading (retailer) Auto spare parts Mining Gold Manufacturing Textile or shirts or shoes Farming livestock (pigs) Indicate products carried, manufactured, or produced by the business. Where it is not feasible to itemize the products as in the case of C-13 taxpayers, it is enough to state the general classification of the products. 3. For the purpose of this Revenue Memorandum Order, the terms shall connote: a. Sales should be net of sales discount, returns and allowances. b. Gross revenue the gross revenue for taxpayers engaged in the sale of services. c. Gross Profit Sales less cost of sales in the case of those engaged in manufacturing, trading, mining, agriculture or contractors whose contracts include the cost of materials and labor. d. Net Profit Gross profit or gross revenue less deductible operating expenses. e. Net Income Net profit from operation plus other income less other non-operating expenses and income tax due. f. Tax Due In preparing the Review Sheet, there are two columns for tax due: (1) Per return, and (2) Per investigation. The tax due per return is the amount of tax shown in the return as computed by the taxpayer. The tax due per investigation is the amount of tax due per return, shown in the first column, plus the deficiency tax discovered in the investigation but not including the interest and other penalties chargeable to the deficiency tax. g. Deficiency Tax The additional tax due after investigation. h. Capital Difference between assets and liabilities, both current and fixed. 4. Under the column, Ratios in Figures , indicate the amounts applicable to the different ratios. 5. Compute the percentage and indicate the same in the blanks provided. In the computation of the ratios, the figures should be those as determined after investigation. 6. Under remarks, the examiner may state additional information covered during the investigation such as the following: a. Any unique operating financial data which will contribute to a better and expeditious evaluation of the case or to a better appreciation of the amount of tax due. b. Explanation for unusual ratios. c. Explanation as to whether there are extraneous or non-recurring income or expenses. d. Whether tax incentives have been availed of by the taxpayer which would explain the distortion of the ratios of net income and tax due figures. 7. If the taxpayer is engaged in multiple lines of industry or business, the required data on (a) Sales, (b) Gross Profit, and (c) Gross Profit ratio shall be accomplished by the examiner for each line of business or industry the taxpayer is engaged in. If there is no segregation of accounts of the different lines of business or industry in the books of accounts, then the business should be taken as a whole for the purpose of requiring data on sales, gross profit, and gross profit ratio. 8. The Group Supervisor, Section Chief, Assistant Revenue District Officer, or Assistant Chief of Division in the investigating divisions in the Central Office shall initial the Review Sheet before the Revenue District Officer or the Chief of the Division signs the same. The reviewer who passes upon the reports in the Assessment Branch of the Regional Office or his counterpart in the Direct Taxes Division in the Central Office, shall sign as the reviewer and all other supervising officials in the Assessment Branch and the Direct Taxes Division in the Central Office shall initial the Review Sheet before it is signed by the head of office. 9. After the report is finally approved by the authorized officials, the Commissioner, Deputy Commissioner, or the Revenue Service Chief (Assessment) as the case may be in the Central Office and the Regional Director or Assistant Regional Director as the case may be in Regional Offices, the Direct Taxes Division in the Central Office or the Assessment Branch in the Regional Office shall detach the original copy of the Review Sheet. The duplicate shall remain with the docket. 10. The original copy of the Review Sheet previously detached shall be forwarded by the Direct Taxes Division in the case of the Central Office and the Assessment Branch in the case of the Regional Office to the Data Processing Center for the annual extraction of statistical data on the different ratios computed by lines of business. Strict compliance of the instructions in this Revenue Memorandum Order is hereby enjoined. A- Enc.: Review Sheet EFREN I. PLANA Acting Commissioner of Internal Revenue TAN P4519-F2828-A-8 ANNEX INSTRUCTIONS FOR FILLING UP REVIEW SHEET 1. Indicate the name, taxpayer account number, and address of the taxpayer on the space as indicated. 2. Be specific with regards to filling up of the blanks for kind of business and the product line. 3. Do not forget to indicate the assessment number of the income tax return. 4. For purposes of this Revenue Memorandum Order, the terms mentioned therein shall mean the following: a. Sales should be net of sales discounts, returns and allowances. b. Gross Revenue the gross revenue of taxpayers engaged in the sale of services. c. Gross Profit Sales less cost of sales in the case of those engaged in manufacturing, trading, mining, agriculture, or contractors whose contracts include the cost of materials and labor. d. Net Profit Gross Profit or gross revenue less deductible operating expenses. e. Net Income Net profit from operation plus other income less other non-operating expenses and income tax due f. Tax Due Tax due per return in the "per return" column is the amount of the tax due shown in the return. In the "per investigation" column, the tax due is the sum of the tax due per return and the deficiency tax discovered in the investigation but not including surcharges, interest and penalties. g. Deficiency Tax The additional tax due after investigation. h. Capital Difference between assets and liabilities, both current and fixed. 5. Under the column "Ratios in Figures", indicate the amount applicable to the ratios. 6. Compute the percentage and indicate the same in the blanks provided. 7. In the computation of ratios, the figures should be those as determined after investigation. 8. Under remarks, the examiner may state additional information discovered during the investigation such as the following: a. Any unique operating financial data which will contribute to a better and expeditious evaluation of the case or to a better appreciation of the amount of tax due. b. Explanation for unusual ratios. c. Explanation as to whether there are extraneous or non-recurring income or expenses. d. Whether tax incentives have been availed of by the taxpayer which would explain the distortion of the ratio of the net income and tax due figures. 9. If the taxpayer is engaged in multiple line of industry or business, the required data on (a) Sales, (b) Gross profit, and (c) Gross profit ratio shall be accomplished by the examiner for each line of business or industry the taxpayer is engaged in. If there is no segregation of accounts of the different lines of business or industry in the books of accounts, then the business should be taken as a whole for the purpose of requiring data on sales, gross profit, and gross profit ratio. 10. The gross income, tax due per return and deficiency for the previous year can be secured from the records of the taxpayer or from the records of the Office whereas those for this year can be secured from the records of investigation being conducted. 11. The Group Supervisor, Section Chief, Assistant Revenue District Officer, or Assistant Chief of Division in the investigating divisions in the Central Office shall initial the Review Sheet before the Revenue District Officer or the Chief of the Division signs the same. The reviewer who passes upon the reports in the Assessment Branch of the Regional Office or his counter part in the Direct Taxes Division in the Central Office, shall sign as the reviewer and all other supervising officials in the Assessment Branch and the Direct Taxes Division in the Central Office shall initial the Review Sheet before it is signed by the Chief of the Division or Branch. BIR Form No. 17.17-RS (June 1977) REVIEW SHEET NAME OF TAXPAYER _____________________ TAN _______________________ ADDRESS ________________________________ ASSESSMENT NO. ___________ KIND OF BUSINESS PRODUCT ______________ PRODUCT LINE ______________ PER RETURN PER INVESTIGATION 1. Sales/Gross Revenue P________________ P__________________ 2. Gross Profit P________________ P__________________ 3. Net Profit P________________ P__________________ 4. Tax Due P________________ P__________________ 5. Deficiency Tax P__________________ 6. Capital P________________ P__________________ RATIOS RATIOS IN FIGURES PERCENTAGE Gross Profit Sales ________________ ________________ Net Profit Sales/Gross Revenue ________________ ________________ Net Income Capital ________________ ________________ Deficiency Tax Tax Due Per Return ________________ ________________ LAST YEAR THIS YEAR Gross Income P_____________ P_____________ Tax Due Per Return P_____________ P_____________ Deficiency Tax P_____________ P_____________ REMARKS: ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Reviewed by: Prepared by: _____________________ ________________________ Reviewer Revenue Examiner Concurred In: __________________________ Division Chief/RDO ____________________________________ Chief, Direct Taxes Division/Assessment Branch (See Instructions at the back)