Collection of Third Party Information by Authority of Section 7 of the National Internal Revenue Code (NIRC)

December 9, 1993 REVENUE MEMORANDUM ORDER NO. 52-93 SUBJECT : Collection of Third Party Information by Authority of Section 7 of the National Internal Revenue Code (NIRC) TO : Assistant Commissioner, Division Chiefs and Others Concerned of the Assessment Service, Revenue Regional Directors and Revenue District Officers in the Metro Manila Area I. Objective The objective of this program is to obtain information from non-government (private sector) sources that will identify persons with significant income and assets. Information obtained from these third party sources will be used to identify taxpayers who have failed to file tax returns, who have stopped filing tax returns or who have underreported their income. Taxpayers identified through this program as having significant audit potential will be referred to the Revenue District Offices for audit. The results of these audits will be monitored and analyzed to determine whether a program of non-government third party information should be operated on a continuous basis. casia II. Program Structure A . Management Oversight Group A program management group will be created to provide direction and address policy questions arising from the operation of this data gathering program. The group will be composed of the following Assessment Service managers: Assistant Commissioner Head Revenue Executive Assistant Chief, Asset Valuation Division Chief, Assessment Programs Division Chief, Audit Data Bank Division B . Operations Teams Program teams of three (3) Revenue Officers each, one of whom will act as the Team Leader, will be established from among the Revenue Officers of the three (3) Divisions of the Assessment Service to conduct the actual gathering of third party data. Revenue Regions and Revenue District Offices in Metro Manila may be called upon to provide Revenue Officers to supplement the project teams from the Assessment Service. The Assistant Commissioner, Assessment Service is authorized to request regional and district personnel to support this program in coordination with the appropriate Regional Director and/or Revenue District Officer. C . Impact of Devolvement During the period of devolvement, the Assistant Commissioner, Assessment Service will avail of the revenue officers of the abolished Divisions of the Special Operations Service and other such offices of the National Office to complete this project. However, the participation of revenue officers assigned to this project will not in any way delay their devolvement to their assigned Revenue Regions. D . Tax Administration Assistance Project (TAAP) The TAAP will be requested to develop the necessary programs to process and analyze the third party data and to supply the needed computer equipment for the data gathering program. III. Program Operation Step 1 - Identify Sources of Information The Management Oversight Group will identify and locate potential private sector sources of third party information that will indicate significant income and assets for certain taxpayers. The following pre-determined sources of information which are indicators of large cash purchases, substantial cash outlays or expenses, membership fees, income, etc. may be included in this program: - dealers of new automobiles - sellers/lessors of condominiums - lessors/lessees of residential houses in affluent subdivisions - lessors/lessees/concessionaires in large shopping malls - credit card companies - private clubs such as golf, polo, yacht, etc. - electric utilities - Philippines Long Distance Telephone Company Additional sources of information may be identified by the Management Oversight Group and contacted during the course of this program. Step 2 - Screening Criteria The Management Oversight Group will develop screening criteria for the data to be obtained from each third party information source. The objective is to only secure the data that will identify taxpayers with significant potential for unreported income and assets, e.g. PLDT customers with large monthly payments or with substantial international calls, or persons who bought condominiums in cash or large monthly installments. Step 3 - Allocation of Assignments To the extent practicable, each Operations Team will be responsible for one category or type of third party information. This action will assign responsibility and ensure uniformity of approach within each information category. Each operations Team will be responsible for the preparation of the "Access to Records" letters, service of the letters, conduct of interviews, and the securing of the requested information. In determining the level of automation of the third party information source, the Team may request for the assistance of a computer advisor from the Management Oversight Group. "Access to Records" letters will follow a similar format for all information sources. The letters will be addressed to the President or Manager of the Office in possession of the desired information. In general, the access letter will specify: aisa dc 1. name and address of purchaser/lessor/lessee, member of the club, user of facility, etc. and the Taxpayer Identification Number. 2. date of transaction 3. total amount of the transaction or installment payments, membership fees, etc. in the year of the transaction. During the interview of the responsible officer of the respondent, the Operations Team will determine the level of automation and the availability of data. Data will be provided on magnetic media only. The Bureau will supply magnetic diskettes and/or magnetic tapes, if requested by the respondent. Step 4 - Time Frames for Data Collection Targeted sources of third party information will normally be given 15 days from the receipt of the "Access to Records" letter to respond with the information requested by the Operations Team. Failure to furnish the information by the respondent will be reported to the Litigation and Prosecution Division of the Legal Service for appropriate action under Section 256 of the NIRC. The Management Oversight Group will establish time frames for each step of the program. Step 5 - Data analysis and Audit Selection Third party information obtained from this program will be analyzed to identify persons who have not filed or stopped filing tax returns, or persons with potential underreported income. Information obtained on persons identified through this program with significant revenue potential will be forwarded to the applicable Revenue District Office for audit. cd i Listings of the data obtained through this program will be forwarded to the RDOs for use in their assessment programs. IV. Reporting Requirements Status reports of activities of this program will be reported by the Assessment Service in its Quarterly Accomplishment Report on Activities on Programs/TASP Implementation. Reporting requirements for taxpayers referred to RDOs for audit will be issued in a subsequent Revenue Memorandum Order. V. Effectivity This order will take effect immediately. LIWAYWAY VINZONS-CHATO Commissioner