Separate Investigation of a Taxpayer's Business and Income Tax Liabilities

October 15, 1975 REVENUE MEMORANDUM ORDER NO. 57-75 SUBJECT : Separate Investigation of a Taxpayer's Business and Income Tax Liabilities TO : All Internal Revenue Officers and Others Concerned It has been observed that in the investigation of the tax liabilities of taxpayers, the verification of their business tax liabilities have not been given the proper emphasis contemplated under the "package audit" policy adopted by this office pursuant to Sec. 337 of the NIRC as amended. This has resulted in the failure of the office to tap the full revenue potential from business tax sources. In order to remedy the inadequacy in our present policy, at least two examiners shall be assigned to investigate a taxpayer if he has a business tax liability in addition to the income tax liability. This procedure which does not violate the "package audit" policy enunciated in Revenue Administrative Order No. 12-70, dated July 7, 1970, in compliance with the provisions of Section 337 of the National Internal Code, as amended, will give equal emphasis to the verification of the income and business tax liabilities of all taxpayers. Under this procedure, the head of office or unit issuing the letter of authority, shall determine from the duplicate income tax return being referred for audit or verification, all the other tax liabilities of the particular taxpayer or business. He shall then requisition the duplicate copies of the other returns required to be filed by the taxpayer. When the duplicates are available, he shall prepare and issue the letter of authority stating therein definitely, the name of the examiner assigned to verify the income tax liability and the examiner assigned to verify the business tax liability to which the taxpayer is subject. It is of utmost importance that the letter of authority issued shall contain the name of the examiner assigned to each kind of tax liability to be investigated so that the investigation, audit or verification can be conducted simultaneously in accordance with the provisions of Section 337 of the NIRC which provides once a year examination, inspection of the taxpayer's books of accounts and at the same time insure that the investigation of the business tax liabilities of the taxpayer is given the same emphasis as that of the income tax investigation. During the investigation, discrepancies discovered by the examiners should be correlated so that the discrepancy discovered in the business tax investigation which may affect the income tax liability of the taxpayer can be taken into account in the report of the examiner conducting the income tax investigation and the findings of the latter which may affect the business tax liability of the taxpayer can likewise be taken into account in the business tax report. In the preparation of the report of investigation, such fact should be mentioned in the report and the evidence or working paper pertaining to the discrepancy should be attached thereto. The immediate supervisor of the examiners who may be the Revenue District Officer or Group Supervisor as the case may be, should see to it that in his review of the report, the discrepancies in either one affecting the tax liability of the other are included in the report. The reviewing officials in the Assessment Branch of the region and in the divisions in the Assessment Service in the Central Office should likewise take this into account in the processing of the report. cd In accordance with the provisions of Revenue Administrative Order No. 12-70 and the unnumbered memorandum of the CIR dated September 18, 1970, separate audit reports shall be rendered for each kind of tax a taxpayer is liable for, on the prescribed forms. The above procedure is effective immediately. EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3