Revision of Procedures on the Preparation and Release of Assessment Notices and Demand Letters

September 25, 1985 REVENUE MEMORANDUM ORDER NO. 27-85 SUBJECT : Revision of Procedures on the Preparation and Release of Assessment Notices and Demand Letters TO : The Revenue Service Chiefs, Sector Operations, National Assessment and Collection Offices, Regional Directors, and Others Concerned I. OBJECTIVES This Order is issued to: A. Establish a system of internal control in the issuance of demand letters and assessment notices; B. Expedite collection of deficiency tax liabilities; and C. Prescribe the procedures for the expeditious resolution of protests to assessments. II. POLICIES A. In all cases under investigation, payment of tax liabilities before a formal assessment notice or demand letter is issued shall be discouraged. B. All letters of demand and assessment notices shall now be prepared in the Receivable Accounts Division of the Collection Office for reports of investigation submitted by investigating divisions in the national office after approval by duly authorized officials, and in the Collection Branches in the Revenue Regions for duly approved reports of investigation within the jurisdiction of such offices. acd C. Demand letters and/or assessment notices shall be based on the Transcript of Assessment (Annexes "A", "A-1" or "A-2") prepared by the Sector Audit Review or National Audit Review Divisions and any other Division performing review functions prior to the approval of reports in the National Office, or by the Assessment Branches in the Revenue Regions. D. All letters of protests, requests for reinvestigation and similar communication shall be referred to the Collection Office or Collection Branch as the case may be for proper recording of the protest after which such documents with the corresponding dockets shall be transmitted to the appropriate office for resolution. E. Letters of protest shall be referred to the following offices: 1. If the protest involves a question of fact, to the Assessment Branch in the Regions or to the Division of the National Assessment or Sector Operations Office in the National Office depending on which Division originally investigated the case. 2. If the protest is anchored on a question of law, to Legal Office for National Office cases or the Legal Branch for Regional cases. 3. If the protest involves both a question of fact and of law, the question of fact shall first be resolved before the question of law applying the abovementioned (1 and 2) criteria. F. The Revenue Service Chief, National Assessment or Sector Operations Offices in the National Office and the Assistant Regional Director in the Regional Offices shall decide whether or not the protest should be given due course in accordance with the provisions of Section 319(a) and its implementing regulations and whether the protest involves a question of fact or of law or both. G. All personnel presently involved in the preparation of letters of demand and assessment notices in the National Assessment and Sectoral Offices and Assessment Branches shall be transferred to the Receivable Accounts Division and the Collection Branch, respectively. H. The Assessment Notices shall be converted to an accountable form. I. Form 40 and Authority to Cancel Assessment and reports on these two forms shall be accomplished by the offices preparing the assessment notices. J. The Collection Office and the Collection Branches shall be responsible for the proper monitoring of the status of tax assessments until the same are collected and the cases closed and filed. cd i K. The National Assessment and Sector Offices in the National Office and the Assessment Branches in the Revenue Regions shall be responsible for monitoring the issuance of assessment notices and letters of demand on the cases acted upon by their respective offices. L. The Records Division in the National Office and the Administrative Branch in the Revenue Regions shall see to it that all closed cases are transmitted to their offices for file. III. PROCEDURES A. The present procedures on the processing of reports of investigation and the pre-audit of tax returns and other activities which give rise to a deficiency assessment up to the approval of the report of investigation or the audit sheet (in case of pre-audit) shall remain effective. B. The reviewing office (Sector Audit Review or National Audit Review or Refund Audit or International Operations Division, in the National Office, or the Assessment Branches in the Regional Offices), after having reviewed the report of investigation but before forwarding the same to the approving authorities, shall send a pre-assessment notice to the taxpayer, indicating therein the basis of the assessment, and a definite time frame within which he may protest the same if he is not agreeable. If the taxpayer files his protest within the period prescribed in the aforesaid notice, the respective aforementioned reviewing office shall likewise resolve the protest and shall inform the taxpayer of the result of the resolution of his protest. C. If a protest in reply to a pre-assessment notice is received after the report is forwarded by the reviewing office to the official authorized to approve the report of investigation or after the tax liability was assessed or demanded, the office concerned (Sector Audit Review or National Audit Review or Refund Audit or International Operations Divisions, in the National Office or the Assessment Branch in the Regional Offices) shall prepare a reply to the taxpayers concerned informing them of the status of their tax cases. These Offices shall also forward to the Collection Office the letters of protest for action in accordance with the provisions of this Order and or other pertinent issuances. D. Preparation of Transcript of Assessment - The Assessment Reviewers shall prepare the Transcript of Assessment (Annexes "A", "A-1", "A-2", "A-3") in duplicate, which shall be the basis for the preparation of the demand letter or assessment notice. The original shall be attached to the docket which the duplicate shall be kept in file by the office preparing the Transcript. E. Transmittal of Dockets - 1. Dockets with recommended deficiency assessments - a) The dockets shall be transmitted by the National Audit Review Division, Refund Audit Division, Sector Audit Review Division, International Operations Division (for audit sheets on returns of non-resident citizens) or Assessment Branches to the offices of the approving officials in batches of not more than ten cases to a batch. Cases wherein the deficiency tax liabilities were paid immediately after investigation but prior to the final approval of the report allowed under policies effective prior to the issuance of this Order, shall be batched and listed separately. b) The dockets in the batch shall be listed in the Transmittal Sheet (Annex "B") to be prepared in six (6) copies, each copy, to be detached by the appropriate office from the batch. c) The original copy of the list shall always remain with the batch until action on all dockets is completed. d) If any tax case is removed from the batch for further action, such action on the tax case shall be indicated in the original and all other copies of the transmittal sheet still with the batch. e) The office to which the case is returned shall update its file of the transmittal sheet by indicating therein the change in the routing of that particular case. f) Upon approval of the investigation or audit reports of the tax cases in the batch, the same shall be forwarded to the Collection Office or Collection Branch as the case may be for the preparation of the Letter of Demand and/or Assessment Notice and listing in Form 40. 2. Tax cases with findings of "No Discrepancy" - These cases shall be batch separately, each batch with a maximum of twenty (20) dockets. These dockets, after approval of the reports, shall go direct to the Records Division or Administrative Branch. F. Preparation of Demand Letters and Assessment Notices - 1) The Collection Office or Collection Branch shall compute the interest due and prepare the demand letter and assessment notice based on the Transcript of Assessment. 2) The letters of demand and assessment notices prepared in the National Office shall be signed by the Revenue Service Chief, Collection, in accordance with the provisions of Revenue Administrative Order No. Those prepared in the Revenue Regions shall continue to be signed by the Regional Director or Assistant Regional Director. 3) The date of issue and the due date for payment of the deficiency tax (30 days after date of issue) shall be determined giving allowance for the movement of the docket from the time the letter and notice is prepared, signed by authorized officials and mailed by the appropriate office. The date of issue should approximate the date of receipt of the letter or notice by the taxpayer. 4) The date of issue shall be either the 15th or 30th of any month if they are working days to facilitate computation of interest. In case these dates fall on a Saturday, Sunday or a Holiday, then the date of issue shall be the next business day. G. Preparation of Form 40 and Authority to Cancel Assessment - 1) The Collection Office or the Collection Branch shall prepare Form 40 in accordance with existing requirements. Separate Form 40s shall be prepared for assessment notices and demand letters issued on cases emanating from the Sector Operations and the National Assessment Offices. A copy of the pertinent monthly Form 40 shall be furnished the Sector Operations or the National Assessment Offices within fifteen (15) days after the end of the preceding month, for assessments prepared during that month. Likewise, the Collection Branch shall furnish the Assessment Branch with a copy of the Form 40, also within the same time limit. aisa dc 2) The Authority to Cancel Assessment (ATCA) shall be prepared whenever an assessment is cancelled or when a previously assessed deficiency tax is reduced as a result of a re-investigation or a reconsideration requested by the taxpayer. The ATCA shall be prepared only after the report of reinvestigation has been approved by the Commissioner or Deputy Commissioners or the duly authorized National Assessment, Sector Operations, or Revenue Regional officials, as the case may be, or where no reinvestigation was conducted, after action on taxpayer's protest is approved also by the same duly authorized officials. The ATCA shall be prepared at the same time that the amended notices are prepared and shall be approved by the Revenue Service Chief, Collection, or the Chief, Collection Branch as the case may be. In case the assessment was cancelled, the docket shall also be forwarded to the Collection Office for preparation of the ATCA after approval of the report or action taken. H. Mailing of Letters of Demand and/or Assessment Notices - 1) Tax dockets with the corresponding letters of demand and assessment notices shall be transmitted to the Records Division in the National Offices or the Administrative Branch in the Revenue Regions, using one copy of the Transmittal Sheet. 2) The original copies of the letters of demand and assessment notices shall be detached from the docket for mailing not later than the date of issue appearing therein. The date of actual mailing of the documents to the taxpayer shall be clearly stamped on the duplicate copies attached to the docket. 3) Microfilming of dockets subject to this operation shall be done immediately, after which all dockets shall be sent to the Receivable Accounts Division in the National Office and to the Collection Branches in the Revenue Regions. acd I. The Collection Office shall keep a record of the movement of any tax docket pending settlement and shall ensure that any tax case can be retrieved at anytime. It shall also institute a call-up system of all tax dockets and shall see to it that tax accounts are collected with the least possible delay. J. The National Assessment and Sector Operations Offices shall utilize copies of Form 40 furnished them by the Collection Office for checking whether or not all deficiency taxes on dockets emanating from their offices were actually assessed or demand or those already paid after investigation are included in Form 40. Copies of the Transcript of Assessment on file in their offices shall be the basis for such determination. The Assessment Branches in the Regional Offices shall perform this function for cases within their respective jurisdictions. K. Letters of Protest - 1) Letters of protest or requests for reinvestigation or reconsideration received in the Records Division or Administrative Branches or any other office authorized to receive communications shall refer such letters to the Collection Office or the Collection Branch, as the case may be. 2) Upon receipt of the letter of protest or request for reinvestigation or reconsideration, the Collection Office or Collection Branch shall record such documents and attach the same to the corresponding dockets. 3) The docket with the letter shall be transmitted to either the National Assessment of Sector Operations Office in the National Office depending on where the case originated or in the Regional Office, to the Office of the Assistant Director. cd 4) The National Assessment or the Sector Operations Offices in the National Office and the Assistant Regional Director shall decide whether or not to give due course to the protest. If the protest is found to be in accordance with existing requirements, the official concerned shall refer the case to the appropriate office in accordance with the provisions of Paragraph II D of this Revenue Memorandum Order. L. The Records Division shall also monitor the dockets returned to the Collection Office after mailing of the assessment notices and letters of demand for the purpose of determining whether or not the dockets are transmitted back to the Division after collection of the tax liabilities. IV. REPEALING CLAUSE All issuances or portions thereof which are inconsistent herewith are hereby suspended. V. EFFECTIVITY The provisions of this Revenue Memorandum Order shall take effect on November 15, 1985. (SGD.) RUBEN B. ANCHETA Acting Commissioner