Revised Policies and Procedures Relative to Cases Assigned to Special Investigation Units

August 5, 1986 REVENUE MEMORANDUM ORDER NO. 30-86 SUBJECT : Revised Policies and Procedures Relative to Cases Assigned to Special Investigation Units TO : All Regional Directors, Chiefs of Special Investigation Units, Chief, Tax Fraud Division, and All Others Concerned I. Objective: This Order aims to provide a uniform policy in the assignment and disposition of cases handled by Special Investigation Units in order to effectively implement the Tax Fraud Program of the Bureau. II. Statement of Policies: A. The Special Investigation Unit (SIU) shall have jurisdiction over the following: 1. Tax fraud cases referred by the Tax Fraud Division to the region: 2. Tax fraud cases referred by higher officials of the Bureau, Revenue District Offices and from other private persons, entities or government agencies within the Region; 3. Tax cases which may have fraud potentials: a) Where the net income or the gross profit declared by the taxpayer in his return shows a percentage rate which is much below the average normal percentage rate of three (3) similarly situated business in the locality where the subject's business is located; b) Where the declared income or known resources of a taxpayer appear to be inadequate in maintaining a taxpayer's life style, standard of living, expenditures and/or to substantiate his property acquisitions; c) Where there are obvious indications of an evident manipulation of the income declaration of a taxpayer or that a probability exists which tend to lend suspicion that no in-depth investigation of the taxpayer's transactions had been conducted by previous examiners for three or more consecutive years, by reason of substantially uniform findings of tax deficiency assessments or collections. 4. Preliminary investigation on cases covered by letters of denunciation or confidential information filed under Section 331 of the NIRC of 1977; 5. Original investigation of the following cases: a) Returns of taxpayers with businesses or transactions located in two or more revenue districts within the region; b) Transfer Tax cases where the real and personal properties of the deceased or donors are located in two or more revenue districts of the region, or where the residence of the deceased or donor is situated in one district but the properties of the estate or subject of the donation are located in another district; c) Returns filed or transactions of exempt persons within the provisions of Section 27, NIRC of 1977, and other special laws, including previously tax-exempt persons whose exemptions were withdrawn by Presidential Decree No. 1955, but excluding taxpayers listed within the jurisdiction of the audit divisions in the National Office. 6. Gathering of facts and evidences on administrative cases of Regional personnel in close coordination with Legal Branch; 7. Reviewing of all fraud cases developed and completed by Revenue District Offices within the Region, and set on all fraud cases referred to the unit; 8. Performing of duties in relation to the tax fraud intensification campaign in the Region, and set on all fraud cases referred to the unit; 9. Performing of duties in relation to the tax fraud intensification campaign in the Region, as may be directed by the Regional Director. B. The region which initially investigated a fraud case shall acquire jurisdiction on the case, and continue with the completion of the investigation, even if the subject taxpayer might have transactions in an adjacent revenue region. casia C. Fraud cases involving investigation of transactions in two or more non-adjacent regions shall fall within the jurisdiction of the Tax Fraud Division. D. On multiple probes of tax Fraud cases involving the Tax Fraud Division and other regional offices, the Commissioner or Deputy Commissioner shall resolve which unit shall continue with the investigation; but the Tax Fraud Division shall resolve conflicts of multiple probes of fraud cases conducted by two or more Regional Offices. III. Investigation Procedures: 1. Letters of Authority Full scale investigation of cases assigned to the SIU, in accordance with its functions and duties, shall be covered by the corresponding Letter of Authority, duly signed by the Regional Director. 2. Preliminary Investigation The authorization or approval of the Regional Director must be secured before the Unit shall conduct an investigation on the following: a) Preliminary investigation (without contact with the taxpayer or his representative) of transactions or facts of alleged tax evasion activities of taxpayers denounced, thru confidential information or letters of denunciation; and b) Special missions or duties on potential fraud cases, such as surveillance activities, apprehensions of violations of the revenue laws, etc. 3. Audit and Investigation Techniques and Procedures The Unit shall, as much as applicable, utilize the audit techniques and procedures embodied in the following issuances: a) Audit Procedures and Techniques for Individual, Partnership and Corporation Income Tax Returns, promulgated on July 1, 1965, per Revenue Memorandum Order No. 25-65; b) Handbook for Special Agents, promulgated for the use of the Tax Fraud Division, on May 21, 1970, under Revenue Memorandum Order No. 34-70; c) Existing Audit Memorandum Orders, Revenue Memorandum Orders and Memoranda issued by the Commissioner, and those which may subsequently be promulgated from time to time; and d) Auditing techniques of accounting records, for tax purposes, from book references, publications, and court decisions. The Chief, Tax Fraud Division is hereby charged with the preparation, review, updating and compilation of all applicable audit techniques and procedures for reference purposes of the SIUs which shall be furnished all Regional Directors and Special Investigation Units. IV. Recording: The Special Investigation Unit shall - 1. Maintain books and records of all cases handled, which should substantially contain the following: a) A log book on all confidential information under oath which were received by the Region to be numbered consecutively, such as RD No. 5-001 and indicating the name of the taxpayer denounced, his address, tax violation committed and action taken, and remarks; b) A separate log book on all tax fraud referrals - from higher officials, from the Tax Fraud Division, from Revenue District Officers and from other government agencies, c) A Fieldman's Assignment Ledger which contains the Name of Taxpayer; Kind of Tax; Period Covered; L/A No., Date Issued; Date Report Received by Supervisor, by RDO; Basic Tax, Surcharge, Penalties, Total and Remarks; d) Separate log book on cases assigned; d-1) For preliminary investigation and those covered by special mission orders, indicating the name of the examiner, date assigned, nature of order, name of taxpayer, address, nature of violation to be investigated, and remarks; d-2) Those covered by Letters of Authority, showing Authority Number, when L/A was released and dated, name of taxpayer, address, reason for the assignment, such as "Fraud Potential", "Tax Exempt", "Administrative Case", "Transactions located in 2 or more districts", etc., name of examiner, remarks; d-3) Separate book on cases reported, indicating the L/A No., date reported, name of taxpayer, address, name of investigating examiner, results of investigation, types of deficiency taxes or violations, assessment, collection, recommendation for prosecution, etc. 2. Submission of Reports - The Unit shall promptly submit the quarterly reports required under RMO 4-82, dated January 5, 1982, and other reports which may from time to time be required by higher officials of the Bureau, thru issuances or directives. V. Processing of Investigation Reports: 1. Reports of investigation by SIU personnel shall be evaluated and reviewed, as follows: a) Fraud cases, whether civil or criminal, shall be reviewed by a Special Review Team, composed of the Chief, Legal Branch, the Chief, Assessment Branch, and the Assistant Regional Director as Chairman, before the case is acted upon by the Regional Director; b) Non-Fraud cases shall be reviewed by the Assessment Branch before the case is acted upon by the Regional Director; and aisa dc c) These above mentioned cases both fraud and non-fraud, shall be included in the list prepared by the Revenue Regions for purposes of evaluation embodied in RMO 26-85. 2. All reports of investigation of the SIU, of taxpayers covered by Letters of Authority, shall be forwarded within 120 days from the date of the issuance of the authority, to the National Office, thru the Tax Fraud Division, for approval by the Commissioner or the Deputy Commissioner; 3. Disposition of reports shall be in accordance with these guidelines - a) If the recommendation by the Regional Director is for criminal prosecution, the Chief, Tax Fraud Division shall transmit the entire docket to the Prosecution Division, unless there is a need to return the docket to the Regional Office for further investigation, or to secure additional evidence, or to conduct further investigation therefor in coordination with the SIU; b) If the recommendation by the Regional Director is for the imposition of the 50% surcharge as a civil fraud case, or that the case is a simple tax deficiency assessment/collection case, the Chief of the Tax Fraud Division shall transmit the entire docket to the Commissioner or Deputy Commissioner, thru the Chief, National Assessment Office, for approval and for the issuance of the letter of demand or assessment notice, unless it is a potential criminal fraud case and in which event it shall be transmitted to the Prosecution Division, or that there is a need to return the docket to the Regional Office for further investigation or securing additional evidence; or that further investigation by the Tax Fraud Division in coordination with the SIU examiners may be necessary. 4. Dockets of closed cases reported by Special Investigation Units shall be filed in the Records Division. VI. Repealing Clause: This Order supersedes RMO 5-83, dated February 25, 1983, and it is an exception to the pertinent portions of RMO 15-85, dated May 20, 1985, in the matter of the authority of the Regional Director to approve and close cases within his jurisdiction. VII. Effectivity: This Order takes effect immediately. (SGD.) BIENVENIDO A. TAN, JR. Commissioner