GENERAL AUDIT PROCEDURES AND DOCUMENTATION 1. When does the audit process be in!

The audit process commences with the issuance of a Letter of Authority to a taxpayer who has been selected for audit. 2. What is a Letter o" Authorit#! The Letter of Authority is an official document that empowers a Revenue Officer to examine and scrutinize a Taxpayers books of accounts and other accountin records! in order to determine the Taxpayers correct internal revenue tax liabilities. 3. Who issues the Letter o" Authorit#! Letter of Authority! for audit"investi ation of taxpayers under the #urisdiction of $ational Office! shall be issued and approved by the %ommissioner of &nternal Revenue! while! for taxpayers under the #urisdiction of Re ional Offices! it shall be issued by the Re ional 'irector. 4. When $ust a Letter o" Authorit# be ser%ed! A Letter of Authority must be served to the concerned Taxpayer within thirty ()*+ days from its date of issuance! otherwise! it shall become null and void. The Taxpayer shall then have the ri ht to refuse the service of this LA! unless the LA is revalidated. 5. &o' o"ten can a Letter o" Authorit# be re%a(idated! A Letter of Authority is revalidated throu h the issuance of a new LA. ,owever! a Letter of Authority can be revalidatedOnly once! for LAs issued in the Revenue Re ional Offices or the Revenue 'istrict Offices. or Twice! in the case of LAs issued by the $ational Office. Any suspended LA(s+ must be attached to the new LA issued (R/O )0100+. 6. &o' $uch ti$e does a Re%enue O""icer ha%e to conduct an audit! A Revenue Officer is allowed only one hundred twenty (23*+ days from the date of receipt of a Letter of Authority by the Taxpayer to conduct the audit and submit the re4uired report of investi ation. &f the Revenue Officer is unable to submit his final report of investi ation within the 23*1day period! he must then submit a 5ro ress Report to his ,ead of Office! and surrender the Letter of Authority for revalidation. 7. &o' is a particu(ar ta)pa#er se(ected "or audit! Officers of the 6ureau (Revenue 'istrict Officers! %hief! Lar e Taxpayer Assessment 'ivision! %hief! 7xcise Taxpayer Operations 'ivision! %hief! 5olicy %ases and Tax 8raud 'ivision+ responsible for the conduct of audit"investi ation shall prepare a list of all taxpayer who fall within the selection criteria prescribed in a Revenue /emorandum Order issued by the %&R to establish uidelines for the audit pro ram of a particular

year. The list of taxpayers shall then be submitted to their respective Assistant %ommissioner for pre1 approval and to the %ommissioner of &nternal Revenue for final approval. The list submitted by R'O shall be pre1approved by the Re ional 'irector and finally approved by Assistant %ommissioner! Assessment 9ervice (R/Os :;1<<! :=1<<! 2013*** and 2<13***+. 8. &o' $an# ti$es can a ta)pa#er be sub*ected to e)a$ination and inspection "or the sa$e ta)ab(e #ear! A taxpayers books of accounts shall be sub#ected to examination and inspection only once for a taxable year! except in the followin cases> 2+ ?hen the %ommissioner determines that fraud! irre ularities! or mistakes were committed by Taxpayer. 3+ ?hen the Taxpayer himself re4uests a re1investi ation or re1examination of his books of accounts

)+ ?hen there is a need to verify the Taxpayers compliance with withholdin and other internal revenue taxes as prescribed in a Revenue /emorandum Order issued by the %ommissioner of &nternal Revenue. ;+ ?hen the Taxpayers capital ains tax liabilities must be verified. and

@+ ?hen the %ommissioner chooses to exercise his power to obtain information relative to the examination of other Taxpayers (9ecs. @ and 3)@! $&R%+. 9. What are so$e o" the po'ers o" the Co$$issioner re(ati%e to the audit process! &n addition to the authority of the %ommissioner to examine and inspect the books of accounts of a Taxpayer who is bein audited! the %ommissioner may also> Obtain data and information from private parties other than the Taxpayer himself (9ec.@! $&R%+. and %onduct inventory and surveillance! and prescribe presumptive ross sales and receipts (9ec. :! $&R%+. 10. What is a Notice "or In"or$a( Con"erence! A $otice for &nformal %onference is a written notice informin a Taxpayer that the findin s of the audit conducted on his books of accounts and accountin records indicate that additional taxes or deficiency assessments have to be paid. &f! after the culmination of an audit! a Revenue Officer recommends the imposition of deficiency assessments! this recommendation is communicated by the 6ureau to the Taxpayer concerned durin an informal conference called for this purpose. The Taxpayer shall then have fifteen (2@+ days from the date of his receipt of the $otice for &nformal %onference to explain his side. 11. Within 'hat ti$e period $ust an assess$ent be $ade! An assessment must be made within three ()+ years from the last day prescribed by law for the filin of the tax return for the tax that is bein sub#ected to assessment or from the day the return was filed if filed late.

,owever! in cases involvin tax fraud! the 6ureau has ten (2*+ years from the date of discovery of such fraud within which to make the assessment. Any assessments issued after the applicable period are deemed to have prescribed! and can no lon er be collected from the Taxpayer! unless the Taxpayer has previously executed a ?aiver of 9tatute of Limitations. 12. What is +,eopard# Assess$ent+! A Aeopardy Assessment is a tax assessment made by an authorized Revenue Officer without the benefit of complete or partial audit! in li ht of the ROs belief that the assessment and collection of a deficiency tax will be #eopardized by delay caused by the Taxpayers failure to> %omply with audit and investi ation re4uirements to present his books of accounts and"or pertinent records! or 9ubstantiate all or any of the deductions! exemptions or credits claimed in his return. 13. What is a Pre-Assess$ent Notice .PAN/! The 5re1Assessment $otice is a communication issued by the Re ional Assessment 'ivision! or any other concerned 6&R Office! informin a Taxpayer who has been audited of the findin s of the Revenue Officer! followin the review of these findin s. &f the Taxpayer disa rees with the findin s stated in the 5A$! he shall then have fifteen (2@+ days from his receipt of the 5A$ to file a written reply contestin the proposed assessment. 012 Under 'hat instances is PAN no (on er re3uired! A 5reliminary Assessment $otice shall not be re4uired in any of the followin cases! in which case! issuance of the formal assessment notice for the payment of the taxpayers deficiency tax liability shall be sufficient> ?hen the findin for any deficiency tax is the result of mathematical error in the computation of the tax appearin on the face of the tax return filed by the taxpayer. or ?hen a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholdin a ent. or ?hen a taxpayer who opted to claim a refund or tax credit of excess creditable withholdin tax for a taxable period was determined to have carried over and automatically applied the same amount claimed a ainst the estimated tax liabilities for the taxable 4uarter or 4uarters of the succeedin taxable year. or ?hen the excise tax due on excisable articles has not been paid. or ?hen an article locally purchased or imported by an exempt person! such as! but not limited to! vehicles! capital e4uipment! machineries and spare parts! has been sold! traded or transferred to non1exempt persons.

15. What is a Notice o" Assess$ent45or$a( Letter o" De$and! A $otice of Assessment is a declaration of deficiency taxes issued to a Taxpayer who fails to respond to a 5re1Assessment $otice within the prescribed period of time! or whose reply to the 5A$ was found to be without merit. The $otice of Assessment shall inform the Taxpayer of this fact! and that the report of investi ation submitted by the Revenue Officer conductin the audit shall be iven due course. The formal letter of demand callin for payment of the taxpayers deficiency tax or taxes shall state the facts! the law! rules and re ulations! or #urisprudence on which the assessment is based! otherwise! the formal letter of demand and the notice of assessment shall be void. TA6PA7ER8S O9LIGATIONS AND PRI:ILEGES 16. What is re3uired o" a ta)pa#er 'ho is bein audited! A Taxpayer who is bein audited is obli ed to> 'uly acknowled e his receipt of the appropriate Letter of Authority upon its presentation by the Revenue Officer authorized to conduct the audit by affixin in the Letter of Authority the name of the recipient and the date of receipt. 5resent within a reasonable period of time! his books of accounts and other related accountin records that may be re4uired by the Revenue Officer. and 9ubmit the necessary schedules as may be re4uested by the Revenue Officer within a reasonable amount of time from his (Taxpayers+ receipt of the Letter of Authority. 17. What is the recourse o" a Ta)pa#er 'ho cannot sub$it the docu$ents bein re3uired o" hi$ 'ithin the prescribed period o" ti$e! &f a Taxpayer! believin that he cannot present his books of accounts and"or other accountin records! intends to re4uest for more time to present these documents in order to avoid the issuance of a Aeopardy Assessment! the Taxpayer may execute what is referred to as a ?aiver of the 9tatute of Limitations. 18. What is a Wai%er o" the Statute o" Li$itations! The ?aiver of the 9tatute of Limitations is a si ned statement whereby the Taxpayer conveys his a reement to extend the period within which the 6ureau may validly issue an assessment for deficiency taxes. &f a Taxpayer opts to execute a ?aiver of the 9tatute of Limitations! he shall likewise be! in effect! waivin his ri ht to invoke the defense of prescription for assessments issued after the re lementary period. $o ?aiver of the 9tatute of Limitations shall be considered valid unless it is accepted by a duly authorized 6ureau official. 19. I" a Ta)pa#er does not a ree 'ith the assess$ent $ade "o((o'in an audit; can he protest this Assess$ent! Bes! he can. A Taxpayer has the ri ht to contest an assessment! and may do so by filin a letter of protest statin in detail his reasons for contestin the assessment.

20. What are the characteristics o" a %a(id protest! A protest is considered valid if it satisfies the followin conditions> &t is made in writin ! and addressed to the %ommissioner of &nternal Revenue. &t contains the information! and complies with the conditions re4uired by 9ec. : of Revenue Re ulations $o. 2310@. to wit> a.+ $ame of the taxpayer and address for the immediate past three ()+ taxable year. b.+ $ature of re4uest whether reinvesti ation or reconsideration specifyin newly discovered evidence he intends to present if it is a re4uest for investi ation. c.+ The taxable periods covered. d.+ Assessment number. e.+ 'ate of receipt of assessment notice or letter of demand. f.+ &temized statement of the findin s to which the taxpayer a rees as a basis for computin the tax due! which amount should be paid immediately upon the filin of the protest. 8or this purpose! the protest shall not be deemed validly filed unless payment of the a reed portion of the tax is paid first. .+ The itemized schedule of the ad#ustments with which the taxpayer does not a ree. h.+ A statement of facts and"or law in support of the protest. The taxpayer shall state the facts! applicable law! rules and re ulations or #urisprudence on which his protest is based! otherwise! his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted! the taxpayer shall submit the re4uired documents in support of his protest within sixty (:*+ days from date of filin of his letter of protest! otherwise! the assessment shall become final! executory and demandable. &t is filed within thirty ()*+ days from the Taxpayers receipt of the $otice of Assessment and formal Letter of 'emand. 21. In the e%ent the Co$$issioner8s du(# authori<ed representati%e denies a Ta)pa#er8s protest; 'hat a(ternati%e course o" action is open to the Ta)pa#er! &f a protest filed by a Taxpayer be denied by the %ommissioners duly authorized representative! the Taxpayer may re4uest the %ommissioner for a reconsideration of such denial and that his tax case be referred to the 6ureaus Appellate 'ivision. The Appellate 'ivision serves as a C%ourtC! where both parties! i.e. the Revenue Officer on one hand! and the Taxpayer on the other! can present testimony and evidence before a ,earin Officer! to support their respective claims. 22. What recourse is open to a Ta)pa#er i" his re3uest "or reconsideration is denied or his protest is not acted!

9hould the Taxpayers re4uest for reconsideration be denied or his protest is not acted upon within 20* days from submission of documents by the %ommissioner! the Taxpayer has the ri ht to appeal with the %ourt of Tax Appeals (%TA+. Any appeal must be done within thirty ()*+ days from the date of the Taxpayers receipt of the %ommissioners decision denyin the re4uest for reconsideration or from the lapse of the 20* day period counted from the submission of the documents. (9ec. 330 of the Tax %ode! as amended+. 23. I" the Ta)pa#er is not satis"ied 'ith the CTA8s decision; can he appea( the decision to a hi her Court! Bes! he can. 'ecisions of the %ourt of Tax Appeals may be appealed with the %ourt of Appeals within fifteen (2@+ days from the Taxpayers receipt of the %TAs decision. &n the event that the Taxpayer is likewise unsatisfied with the decision of the %ourt of Appeals! he may appeal this decision with the 9upreme %ourt. 24. Can a Ta)pa#er c(ai$ a re"und or ta) credit "or erroneous(# or i((e a((# co((ected ta)es! Bes! he can. The Taxpayer may file such a claim with the %ommissioner of &nternal Revenue (9ec.33<! $&R%+! within two (3+ years from the payment of the tax or penalty sou ht to be refunded. 8ailure of the Taxpayer to file such a claim within this prescribed period shall result in the forfeiture of his ri ht to the refund or tax credit. 25. I" a Ta)pa#er has "i(ed a c(ai$ "or re"und and the 9ureau has #et to render a decision on this c(ai$; can the Ta)pa#er e(e%ate his c(ai$ to the CTA! Bes! he can! if the two (3+ year period stated above is about to end! and the %ommissioner has yet to render a decision on the claim. (Dibbs v. %ollector! L12);@)! 8ebruary 3<! 2<:*+. REMEDIES O5 T&E 9UREAU IN T&E AUDIT PROCESS AND COLLECTION O5 DELIN=UENT ACCOUNTS >?2 What $eans are a%ai(ab(e to the 9ureau to co$pe( a Ta)pa#er to produce his boo@s o" accounts and other records! A Taxpayer shall be re4uested! in writin ! not more than two (3+ times! to produce his books of accounts and other pertinent accountin records! for inspection. &f! after the Taxpayers receipt of the second written re4uest! he still fails to comply with the re4uirements of the notice! the 6ureau shall then issue him a 9ubpoena 'uces Tecum. 272 What course o" action sha(( the 9ureau ta@e i" the Ta)pa#er "ai(s to co$p(# 'ith the Subpoena Duces Tecu$! &f! after the Taxpayer fails! refuses! or ne lects to comply with the re4uirements of the 9ubpoena 'uces Tecum! the 6ureau may> 8ile a criminal case a ainst the Taxpayer for violation of 9ection @ as it relates to 9ections 2; and 3::! of the $&R%! as amended. and"or

&nitiate proceedin s to cite the Taxpayer for contempt! under 9ection )(f+! Rule =2 of the Revised Rules of %ourt. 28. What a(ternati%es are open to Go%ern$ent "or the co((ection o" de(in3uent accounts! Once an assessment becomes final and demandable! the Dovernment may employ any! or all! of the followin remedies for the collection of delin4uent accounts> 2. 3. ). ;. 'istraint of personal property. Levy of real property belon in to the Taxpayer. %ivil Action. and %riminal Action.

29. What is +Distraint o" Persona( Propert#+! 'istraint of personal property involves the seizure by the Dovernment of personal property 1 tan ible or intan ible 1 to enforce the payment of taxes! followed by the public sale of such property! if the Taxpayer fails to pay the taxes voluntarily. 30. What is +Le%# o" Rea( Propert#+! Levy of real property refers to the same act of seizure! but in this case of real property! and interest in or ri hts to such property in order to enforce the payment of taxes. As in the distraint of personal property! the real property under levy shall be sold in a public sale! if the taxes involved are not voluntarily paid followin such levy. 312 In 'hat ti$e period $ust co((ection be $ade! Any internal revenue tax! which has been assessed within the period prescribed shall be collected within three ()+ years from date of assessment. ,owever! tax fraud cases may be collected by distraint or levy or by a court proceedin within five (@+ years from assessment of the tax or from the last waiver.