1998 Enforcement Audit Program

February 16, 1998 REVENUE MEMORANDUM ORDER NO. 27-98 SUBJECT : 1998 Enforcement Audit Program TO : All Internal Revenue Officers Concerned 1. OBJECTIVES 1.1 To develop and prescribe audit policies, guidelines and standards necessary to improve the quality of audits; 1.2 To ensure proper application of laws through the adoption of fair and uniform rules and procedures in the tax treatment of certain industries; 1.3 To intensify monitoring of taxpayers subject to excise taxes and those enjoying exemption and other tax privileges; 1.4 To ensure proper development of fraud cases preparatory to filing of civil and/or criminal cases against taxpayers committing fraud. prcd 2. AUDIT POLICIES AND PROCEDURES : 2.1 In General 2.1.1 Coverage . This Audit Program shall cover 1996 and 1997 Income, Value-Added Tax, Percentage, Withholding and other tax returns and liabilities of the following sectors/industries: For Policy Cases a. Banks, Insurance and other Financial Intermediaries; b. International Carriers; c. Telecommunication companies; d. Pharmaceutical companies; e. Top 1,500 large taxpayers as may be identified by the Large Taxpayers Division. For Tax-Exempt entities and those enjoying preferential tax treatment a. Board of Investments, Export Development Authority and Philippine Export Zone Authority registered companies; b. Exempt Organizations pursuant to Sec. 30 (formerly Sec. 26) of the NIRC; c. SBMA and CDC enterprises. For Excise Taxpayers a. Oil Companies b. Breweries, Distillers, Rectifiers and Compounders c. Cigarette Manufacturers For Fraud a. Cases covered by confidential information filed by informers; b. Tax fraud cases developed by the Tax Fraud Division and those elevated to it by the Regional Offices. All cases falling under this Section shall be automatically excluded from the coverage of the 1998 Audit Program by the Assessment Service for Revenue District Offices (RDOs). For this purpose, all RDOs or Revenue Data Center (RDC) Heads are directed to forward within 10 days upon approval of this RMO or within 10 days after the filing of the return (if a tax return has not yet been filed) to the Office of the ACIR for Enforcement all tax returns of taxpayers covered under this Audit Program. 2.1.2 Exception . Taxpayers covered by this audit program who availed of the Voluntary Assessment Program under Revenue Memorandum Order Nos. 59-97, 60-97 and 63-97 shall not be included unless the availment was found to be substantially deficient by the Voluntary Assessment Program Committee as approved by the Commissioner; 2.1.3 Fiscal Year Returns . Taxable years 1996 and 1997 shall include all those corporations with fiscal years ending on or before June 30, 1997 and June 30, 1998, respectively; 2.1.4 Letter of Authority . One Letter of Authority/Audit Notice to be signed by the Deputy Commissioner (DCIR) for Legal and Enforcement Group shall be issued for each taxpayer subject to audit. 2.2 Audit Workload and Monitoring 2.2.1 Initial Workload . Initial Workload for every Revenue Officer shall be a maximum of ten (10) cases. This shall include initial inventory composed of cases turned-over from defunct Special Teams and the Tax Fraud Division due to the reorganization and reshuffling of personnel; 2.2.2 Maximum Workload . In no case shall the number of audit cases assigned to a Revenue Officer exceed 10 cases at any one time, unless there are justifiable reasons as determined by the Assistant Commissioner (ACIR) for Enforcement Service; 2.2.3 Submission of Monthly Progress Reports . Revenue Officers shall be required to submit progress reports to their respective Division Chiefs every month after the issuance of a Letter of Authority/Audit Notice until the case is terminated; 2.2.4 Inventory List . A list of inventory of cases assigned to each Revenue Officer and the audit status of the case shall likewise be submitted by the Division Chiefs to the ACIR for Enforcement on the 10th day after the end of each month. This report shall enable the ACIR to monitor the progress of audit works done in each division; 2.2.5 Re-assignment of cases and/or audit personnel . The ACIR for Enforcement shall have the authority to utilize all revenue officers, intelligence officers and special investigators within the Enforcement Service or in the Special Investigation Division of the Revenue Regions, if there are reasonable grounds i.e., inadequate manpower, as determined by the DCIR for Legal and Enforcement in order to meet the objectives set forth under this audit program. 2.3 Reporting of Cases 2.3.1 Audit Reports . Audit reports shall follow the audit guidelines prescribed under the Audit Manual, in addition to other reporting requirements for each specialized industry to be determined by the ACIR for Enforcement; 2.3.2 Conference Letter . Upon completion of the investigation, an audit report shall be submitted to the Division Chief who shall issue the Conference Letter to taxpayer. No report of investigation shall be approved unless the taxpayer has been given the chance to be informed of the nature of the findings and the result of the audit; LLpr 2.3.3 Industry Audit . Audits undertaken to develop industry procedures, guidelines and standards must be treated/audited as an industry rather than as individual taxpayers. Hence, a joint and coordinated audit must be undertaken in order to ensure uniformity of action. 2.3.4 Revenue Audit Memorandum Order (RAMO) . For every industry covered policy audits, there shall be a Revenue Audit Memorandum Order (RAMO) to be issued upon completion of each project. This shall serve as a guide in subsequent audits by the assessment units in the District Offices. 2.3.5 Accomplishment Report for the Management Committee (MANCOM) . The ACIR for Enforcement, through the DCIR for Legal and Enforcement, shall submit to the MANCOM an accomplishment report on the audits conducted under this RMO every end of the calendar quarter. This report shall include analyses and recommendations with respect to audit and enforcement that may guide the MANCOM in setting up policies and guidelines. 2.4 Review of Cases and Collection of Deficiency Taxes 2.4.1 Issuance of Authority to Accept Payment (ATAP) and Assessment Notice . Cases shall be reviewed by the ACIR for Enforcement who shall issue the ATAP and/or Assessment Notice to cover deficiency tax liabilities found after audits. However, no Assessment Notice or ATAP shall be issued by the ACIR, Enforcement Service unless the corresponding report of investigation has been duly approved by the DCIR for Legal and Enforcement. For cases under the Special Investigation Division of the Revenue Regions, the ATAP shall be issued by the Regional Director and the Assessment Notice by the Assessment Division, of their respective regions. 2.4.2 Payment of ATAP . All ATAPs issued by the Enforcement Service shall be paid by the taxpayer to any Authorized Agent Bank (AAB) within the jurisdiction of the RDO where the taxpayer's principal business is located. Any tax collected as a result of audit by the Enforcement Service shall be credited as collection of the RDO where such ATAP was paid. For Large Taxpayers as determined by the Large Taxpayers Division, a special procedure for payment shall be prescribed under another RMO. A copy of the receipt evidencing payment shall be submitted to the investigating officer to be attached to the docket of the case as proof that the tax liability has been actually paid. 2.5 Monitoring of Enforcement Audits Nationwide 2.5.1 Submission of Monthly Audit Results . The investigating divisions under the Enforcement Service and the Special Investigation Division of the Revenue Regions shall submit to the Enforcement Service a monthly report of Audit Results within 15 days after the end of each month. This report shall include the TIN and the name of taxpayer, and the total amount of collection and/or assessment during the month covered. This shall enable the Enforcement Service to monitor the results of enforcement audits nationwide and the amount of collection generated. 3. REPEALING CLAUSE Unless inconsistent with the rules set forth in this program, all other rules for regular audits by the District Offices shall be followed. 4. EFFECTIVITY This Order takes effect on April 1, 1998. However, the audit of 1997 income and other internal revenue tax returns shall commence July 16, 1998. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue