Prescribing the Policies and Procedures in the Implementation of Operation "Even Returns"

July 17, 1997 REVENUE MEMORANDUM ORDER NO. 41-97 SUBJECT : Prescribing the Policies and Procedures in the Implementation of Operation "Even Returns" TO : All Revenue District Officers and Others Concerned I. OBJECTIVES: This Office has noted that a number of withholding agents have been remiss in their application of the Withholding Tax Table, as evidenced by the number of compensation income earners paying additional income taxes on April 15 and July 15. In support of the Withholding Tax Program for 1997 embodied in Revenue Memorandum Circular No. 2-97 as a BIR Priority Program, all Revenue District Officers shall implement Operation "Even Returns", a special activity of the Operations Group, which is designed to: 1. Raise the level of voluntary compliance of Withholding Agents; 2. Increase the level of awareness of Withholding Agents on rules and regulations concerning the correct withholding and timely remittance of taxes withheld; and 3. Encourage employers to periodically verify and update the information furnished by their employees, as a prerequisite to proper withholding of taxes. II. POLICIES AND GUIDELINES In the implementation of Operation "Even Returns", all Revenue District Officers shall be guided by the following: 1. All Revenue District Officers shall check the levels of compliance of all Withholding Agents in their jurisdiction, by segregating all taxable returns filed by employees earning compensation income from only one (1) employer. 2. The appropriate penalties shall be strictly enforced for non-withholding and/or under-remittance of withholding taxes. III. PROCEDURE The following procedures shall be observed in Operation "Even Returns": 1. Gather all taxable 1996 returns filed by taxpayers earning compensation income from only one (1) employer . The following returns shall NOT be included: a. Those filed by employees earning compensation income from more than one (1) employer; b. Those filed by employees whose employers are not registered with the Revenue District Office concerned ; and c. Those filed without a copy of the taxpayer's Certificate of Income Tax Withheld on Compensation (Form No. W-2) . 2. Group these returns according to the taxpayers' employer , and assign them to a Revenue Officer (Assessment) through a Revenue Verification Order (RVO). 3. Summarize the pertinent data contained in the returns, in accordance with the format for the List of Taxable Returns (Form 1701-A) of Compensation Income Earners prescribed in Annex A. 4. Compute the difference between the total tax due and total tax withheld for all employees of a particular employer who filed taxable returns. The total difference shall serve as the basis for the computation of surcharges and interests that must be paid by the Withholding Agent (Employer) concerned. The following formula may be used in computing the total surcharge and interest due: Basic Tax Due (Based on the attached List of Employees) ======== 25% Surcharge (Basic Tax x 0.25) 20% Interest * (Basic Tax + Surcharge) Compromise Penalty ------------- TOTAL SURCHARGES AND INTEREST DUE ======== * Interest should run from the date the tax should have been remitted to April 15 of the following year. For uniformity in the application of interest for returns filed for taxable year 1996, interest may be computed from January 25 to April 15, 1997 . 5. Inform the Withholding Agent (Employer) concerned of the total surcharges and interest payable, and compromise penalties. Formats for the official communications to both government Agencies/Instrumentalities and Withholding Agents from the private sector, informing them of the assessed penalties, are attached as Annexes B and C of this Order. For this purpose, penalties shall be imposed on: a. For Government Withholding Agents the Chief Accountant, Head of Accounting, or Financial Officer of the Agency/Office (Annex B); or b. For Private Withholding Agents the registered individual owner, corporation, or partnership (Annex C). 6. In the event that the Withholding Agent fails to respond to the written notice of penalties incurred within fifteen (15) days from receipt of said notice, the Revenue Officer concerned shall immediately report the assessment as an audit case, following standard audit reporting procedures and requirements. 7. The Head of the Assessment Unit in each Revenue District Office, shall supervise the implementation of this Order, and shall report to the Revenue District Officer concerned any developments therein. 8. This activity must be concluded not later than Friday, August 29, 1997. IV. REPORTING REQUIREMENTS All Revenue District Officers must submit to the Office of the Assistant Commissioner (Collection Service), copy furnished the Regional Director having jurisdiction over their respective Districts, a Consolidated Report (Annex D) on each District Office's accomplishments under Operation "Even Returns" on or before Monday, September 8, 1997. V. EFFECTIVITY This Order shall take effect immediately. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue ANNEX A ANNEX B ___________________ ___________________ ___________________ ___________________ ___________________ Sir/Madam : The Bureau of Internal Revenue is presently implementing Operation "Even Returns", an endeavor through which we hope to raise the level of voluntary compliance of Withholding Agents and increase the level of awareness on rules and regulations concerning the correct withholding and timely remittance of taxes withheld. Upon verification, records of this Office show that a number of your employees filed taxable income tax returns for the year 199__, and paid the balance of their taxes on April 15 and/or July 15. As a withholding agent, you are required to withhold from your employees' wages an amount equivalent to the total tax due for a taxable year, thereby making the income tax returns filed (Form No. 1701A) an even return. The tax payments made by your employees (please refer to the attached List of Employees) upon filing of their returns indicate that you failed to comply with existing rules and regulations relative to the withholding and remittance of Withholding Taxes. As such, and pursuant to Revenue Regulations No . 1-87, dated April 2, 1987 (copy attached), you, as the Accountable Officer of _______________________________, shall therefore be liable to pay the following : Basic Tax Due (Based on the attached List of Employees) ------------ 25% Surcharge on Basic Tax 20% Interest (Jan. 25, 199__ to April 15, 199__) Compromise Penalty ------------ TOTAL SURCHARGES AND INTEREST DUE ------------ Prior to the finalization of this assessment, you may, if you so desire, clarify or confirm the details of the computation of penalties with this Office, and inquire into the correct manner in which the Withholding Tax Table may be applied. We hope that in the future, the correct withholding taxes shall be computed and remitted by your Office, and that your employees shall be able to file even returns. Sincerely yours, Revenue District Officer RD No . __, _________________ ANNEX C ___________________ ___________________ ___________________ ___________________ Attn: _________________ _________________ Gentlemen : The Bureau of Internal Revenue is presently implementing Operation "Even Returns", an endeavor through which we hope to raise the level of voluntary compliance of Withholding Agents, and increase the level of awareness on rules and regulations concerning the correct withholding and timely remittance of taxes withheld. Upon verification, records of this Office show that a number of your employees filed taxable income tax returns for the year 199__, and paid the balance of their taxes on April 15 and/or July 15. As a withholding agent, you are required to withhold from your employees' wages an amount equivalent to the total tax due for a taxable year, thereby making the income tax return filed (Form No. 1701A) an even return. The tax payments made by your employees (please refer to the attached List of Employees) upon filing of their returns indicate that you failed to comply with existing rules and regulations relative to the withholding and remittance of Withholding Taxes. As such, and pursuant to Revenue Regulations No . 1-87, dated April 2, 1987 (copy attached) , ____________________________________________, is liable to pay the following : Basic Tax Due (Based on the attached List of Employees) ------------ 25% Surcharge on Basic Tax 20% Interest (Jan. 25, 199__ to April 15, 199__) Compromise Penalty ------------ TOTAL SURCHARGES AND INTEREST DUE ------------ Prior to the finalization of this assessment, you may, if you so desire, clarify or confirm the details of the computation of penalties with this Office, and inquire into the correct manner in which the Withholding Tax Table may be applied. We hope that in the future, the correct withholding taxes shall be computed and remitted by your company, and that your employees shall be able to file even returns. Sincerely yours, Revenue District Officer RD No . __, _________________ ANNEX C-1 INSTRUCTIONS FOR THE PREPARATION OF NOTICES OF SURCHARGES AND INTEREST DUE 1. For Government Withholding Agents (Annex B): The Notice shall be addressed to the Accountable Officer of the Government Agency/Office Ex. Mr. Juan de la Cruz Chief, Accounting Department Department of Commerce Intramuros Avenue, Manila The Government Agency/Office shall be indicated in the space provided in Paragraph No. 3 of the Notice. 2. For Private Withholding Agents (Annex C) The Notice shall be addresses to the registered Taxpayer, Corporation/Partnership, or Association. The name of the Chief Financial Officer, Chief Accountant, or Head of Accounting shall be specified in the "Attention" line, and his/her designation provided immediately below. Ex. ABC Company 1 Ayala Avenue Makati City Attn: Mr. Juan de la Cruz Chief Financial Officer The name of the registered Taxpayer, Corporation/Partnership or Association concerned shall be indicated in the space provided in Paragraph No. 3 of the Notice. ANNEX D ANNEX A Internal Communications Network ACKNOWLEDGMENT RECEIPT This is to acknowledge receipt of the following document(s) in clear and legible condition, from the Corporate Communications Office (CCO) on (date of receipt) __________. (Enumerate documents received): This Office shall transmit to the CCO any comment(s) it may have on the issuance(s)/communication(s), within twenty (20) days from the said date of receipt. ____________________ Signature ____________________ Printed Name of Official ____________________ Designation ____________________ Place of Assignment ANNEX B Internal Communications Network FEEDBACK SHEET MEMO TO: The Head, Corporate Communications Office This refers to _______________________ dated _________ which was (Issuance/Communication) received by this Office on _____________. Please consider our comments, as follows: Please relay action/clarification to this Office the soonest possible time. ____________________ Signature ____________________ Printed Name of Official ____________________ Designation ____________________ Place of Assignment