1. BILL OF RIGHTS OF TAXPAYERS.
who fall within the selection criteria prescribed in a Revenue Memorandum Order
GENERAL AUDIT PROCEDURES AND DOCUMENTATION
1. When does the audit process begin? 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 of Authority? The Letter of Authority is an official document that
empowers a Revenue Officer to examine and scrutinize a Taxpayers books of
accounts and other accounting records, in order to determine the Taxpayers correct
internal revenue tax liabilities.
3. Who issues the Letter of Authority? Letter of Authority, for audit/investigation of
taxpayers under the jurisdiction of National Office, shall be issued and approved by
the Commissioner of Internal Revenue, while, for taxpayers under the jurisdiction of
Regional Offices, it shall be issued by the Regional Director.
4. When must a Letter of Authority be served? A Letter of Authority must be served
to the concerned Taxpayer within thirty (30) days from its date of issuance,
otherwise, it shall become null and void. The Taxpayer shall then have the right to
refuse the service of this LA, unless the LA is revalidated.
5. How often can a Letter of Authority be revalidated? A Letter of Authority is
revalidated through the issuance of a new LA. However, a Letter of Authority can
be revalidated
Only once, for LAs issued in the Revenue Regional Offices or the Revenue District
Offices; or
Twice, in the case of LAs issued by the National Office.
Any suspended LA(s) must be attached to the new LA issued (RMO 38-88).
6. How much time does a Revenue Officer have to conduct an audit? A Revenue
Officer is allowed only one hundred twenty (120) days from the date of receipt of a
Letter of Authority by the Taxpayer to conduct the audit and submit the required
report of investigation. If the Revenue Officer is unable to submit his final report of
investigation within the 120-day period, he must then submit a Progress Report to
his Head of Office, and surrender the Letter of Authority for revalidation.
7. How is a particular taxpayer selected for audit? Officers of the Bureau (Revenue
District Officers, Chief, Large Taxpayer Assessment Division, Chief, Excise
Taxpayer Operations Division, Chief, Policy Cases and Tax Fraud Division)
responsible for the conduct of audit/investigation shall prepare a list of all taxpayer
issued by the CIR to establish guidelines for the audit program of a particular year.
The list of taxpayers shall then be submitted to their respective Assistant
Commissioner for pre-approval and to the Commissioner of Internal Revenue for
final approval. The list submitted by RDO shall be pre-approved by the Regional
Director and finally approved by Assistant Commissioner, Assessment Service
(RMOs 64-99, 67-99, 18-2000 and 19-2000).
8. How many times can a taxpayer be subjected to examination and inspection for
the same taxable year? A taxpayers books of accounts shall be subjected to
examination and inspection only once for a taxable year, except in the following
cases:
When the Commissioner determines that fraud, irregularities, or mistakes were
committed by Taxpayer;
When the Taxpayer himself requests a re-investigation or re-examination of his
books of accounts;
When there is a need to verify the Taxpayers compliance with withholding and other
internal revenue taxes as prescribed in a Revenue Memorandum Order issued by
the Commissioner of Internal Revenue.
When the Taxpayers capital gains tax liabilities must be verified; and
When the Commissioner chooses to exercise his power to obtain information
relative to the examination of other Taxpayers (Secs. 5 and 235, NIRC).
9. What are some of the powers of the Commissioner relative to the audit process?
In addition to the authority of the Commissioner to examine and inspect the books
of accounts of a Taxpayer who is being audited, the Commissioner may also:
Obtain data and information from private parties other than the Taxpayer himself
(Sec.5, NIRC); and
Conduct inventory and surveillance, and prescribe presumptive gross sales and
receipts (Sec. 6, NIRC).
10. What is a Notice for Informal Conference? A Notice for Informal Conference is
a written notice informing a Taxpayer that the findings of the audit conducted on his
books of accounts and accounting records indicate that additional taxes or
deficiency assessments have to be paid.
If, after the culmination of an audit, a Revenue Officer recommends the imposition
of deficiency assessments, this recommendation is communicated by the Bureau to
the Taxpayer concerned during an informal conference called for this purpose. The When a taxpayer who opted to claim a refund or tax credit of excess creditable
Taxpayer shall then have fifteen (15) days from the date of his receipt of the Notice withholding tax for a taxable period was determined to have carried over and
for Informal Conference to explain his side. automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year; or
11. Within what time period must an assessment be made? An assessment must
be made within three (3) years from the last day prescribed by law for the filing of When the excise tax due on excisable articles has not been paid; or
the tax return for the tax that is being subjected to assessment or from the day the
return was filed if filed late. However, in cases involving tax fraud, the Bureau has When an article locally purchased or imported by an exempt person, such as, but
ten (10) years from the date of discovery of such fraud within which to make the not limited to, vehicles, capital equipment, machineries and spare parts, has been
assessment. sold, traded or transferred to non-exempt persons.
Any assessments issued after the applicable period are deemed to have prescribed,
and can no longer be collected from the Taxpayer, unless the Taxpayer has
15. What is a Notice of Assessment/Formal Letter of Demand?
previously executed a Waiver of Statute of Limitations.
A Notice of Assessment is a declaration of deficiency taxes issued to a Taxpayer
12. What is "Jeopardy Assessment"? A Jeopardy Assessment is a tax assessment
who fails to respond to a Pre-Assessment Notice within the prescribed period of
made by an authorized Revenue Officer without the benefit of complete or partial
time, or whose reply to the PAN was found to be without merit. The Notice of
audit, in light of the ROs belief that the assessment and collection of a deficiency
Assessment shall inform the Taxpayer of this fact, and that the report of
tax will be jeopardized by delay caused by the Taxpayers failure to: investigation submitted by the Revenue Officer conducting the audit shall be given
due course.
Comply with audit and investigation requirements to present his books of accounts
and/or pertinent records, or
The formal letter of demand calling for payment of the taxpayers deficiency tax or
taxes shall state the facts, the law, rules and regulations, or jurisprudence on which
Substantiate all or any of the deductions, exemptions or credits claimed in his return. the assessment is based, otherwise, the formal letter of demand and the notice of
assessment shall be void.
13. What is a Pre-Assessment Notice (PAN)? The Pre-Assessment Notice is a
communication issued by the Regional Assessment Division, or any other
concerned BIR Office, informing a Taxpayer who has been audited of the findings TAXPAYERS OBLIGATIONS AND PRIVILEGES
of the Revenue Officer, following the review of these findings.
16. What is required of a taxpayer who is being audited? A Taxpayer who is being
If the Taxpayer disagrees with the findings stated in the PAN, he shall then have audited is obliged to:
fifteen (15) days from his receipt of the PAN to file a written reply contesting the
proposed assessment.
Duly acknowledge his receipt of the appropriate Letter of Authority upon its
presentation by the Revenue Officer authorized to conduct the audit by affixing in
14. Under what instances is PAN no longer required? A Preliminary Assessment the Letter of Authority the name of the recipient and the date of receipt.
Notice shall not be required in any of the following cases, in which case, issuance
of the formal assessment notice for the payment of the taxpayers deficiency tax
Present within a reasonable period of time, his books of accounts and other related
liability shall be sufficient:
accounting records that may be required by the Revenue Officer; and
When the finding for any deficiency tax is the result of mathematical error in the
Submit the necessary schedules as may be requested by the Revenue Officer within
computation of the tax appearing on the face of the tax return filed by the taxpayer;
a reasonable amount of time from his (Taxpayers) receipt of the Letter of Authority.
or
17. What is the recourse of a Taxpayer who cannot submit the documents being
When a discrepancy has been determined between the tax withheld and the amount
required of him within the prescribed period of time? If a Taxpayer, believing that he
actually remitted by the withholding agent; or
cannot present his books of accounts and/or other accounting records, intends to
request for more time to present these documents in order to avoid the issuance of
a Jeopardy Assessment, the Taxpayer may execute what is referred to as a Waiver
of the Statute of Limitations.
18. What is a Waiver of the Statute of Limitations? The Waiver of the Statute of
Limitations is a signed statement whereby the Taxpayer conveys his agreement to
extend the period within which the Bureau may validly issue an assessment for
deficiency taxes. If a Taxpayer opts to execute a Waiver of the Statute of Limitations,
he shall likewise be, in effect, waiving his right to invoke the defense of prescription
for assessments issued after the reglementary period.
No Waiver of the Statute of Limitations shall be considered valid unless it is
accepted by a duly authorized Bureau official.
19. If a Taxpayer does not agree with the assessment made following an audit, can
he protest this Assessment? Yes, he can. A Taxpayer has the right to contest an
assessment, and may do so by filing a letter of protest stating in detail his reasons
for contesting the assessment.
20. What are the characteristics of a valid protest? A protest is considered valid if it
satisfies the following conditions:
It is made in writing, and addressed to the Commissioner of Internal Revenue;
It contains the information, and complies with the conditions required by Sec. 6 of
Revenue Regulations No. 12-85; to wit:
a.) Name of the taxpayer and address for the immediate past three (3) taxable year.
b.) Nature of request whether reinvestigation or reconsideration specifying newly
discovered evidence he intends to present if it is a request for investigation.
c.) The taxable periods covered.
d.) Assessment number.
e.) Date of receipt of assessment notice or letter of demand.
f.) Itemized statement of the findings to which the taxpayer agrees as a basis for
computing the tax due, which amount should be paid immediately upon the filing of
the protest. For this purpose, the protest shall not be deemed validly filed unless
payment of the agreed portion of the tax is paid first.
g.) The itemized schedule of the adjustments with which the taxpayer does not
agree.
h.) A statement of facts and/or law in support of the protest.
The taxpayer shall state the facts, applicable law, rules and regulations or
jurisprudence 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 required
documents in support of his protest within sixty (60) days from date of filing of his
letter of protest, otherwise, the assessment shall become final, executory and
demandable.
It is filed within thirty (30) days from the Taxpayers receipt of the Notice of
Assessment and formal Letter of Demand.
21. In the event the Commissioners duly authorized representative denies a
Taxpayers protest, what alternative course of action is open to the Taxpayer? If a
protest filed by a Taxpayer be denied by the Commissioners duly authorized
representative, the Taxpayer may request the Commissioner for a reconsideration
of such denial and that his tax case be referred to the Bureaus Appellate Division.
The Appellate Division serves as a "Court", where both parties, i.e. the Revenue
Officer on one hand, and the Taxpayer on the other, can present testimony and
evidence before a Hearing Officer, to support their respective claims.
22. What recourse is open to a Taxpayer if his request for reconsideration is denied
or his protest is not acted?
Should the Taxpayers request for reconsideration be denied or his protest is not
acted upon within 180 days from submission of documents by the Commissioner,
the Taxpayer has the right to appeal with the Court of Tax Appeals (CTA).
Any appeal must be done within thirty (30) days from the date of the Taxpayers
receipt of the Commissioners decision denying the request for reconsideration or
from the lapse of the 180-day period counted from the submission of the documents.
(Sec. 228 of the Tax Code, as amended).
23. If the Taxpayer is not satisfied with the CTAs decision, can he appeal the
decision to a higher Court? Yes, he can. Decisions of the Court of Tax Appeals may
be appealed with the Court of Appeals within fifteen (15) days from the Taxpayers
receipt of the CTAs decision. In the event that the Taxpayer is likewise unsatisfied
with the decision of the Court of Appeals, he may appeal this decision with the
Supreme Court.
24. Can a Taxpayer claim a refund or tax credit for erroneously or illegally collected
taxes? Yes, he can. The Taxpayer may file such a claim with the Commissioner of
Internal Revenue (Sec.229, NIRC), within two (2) years from the payment of the tax
or penalty sought to be refunded. Failure of the Taxpayer to file such a claim within
this prescribed period shall result in the forfeiture of his right to the refund or tax
credit.
25. If a Taxpayer has filed a claim for refund and the Bureau has yet to render a
decision on this claim, can the Taxpayer elevate his claim to the CTA?
Yes, he can, if the two (2) year period stated above is about to end, and the
Commissioner has yet to render a decision on the claim. (Gibbs v. Collector, L-
13453, February 29, 1960).
REMEDIES OF THE BUREAU IN THE AUDIT PROCESS AND COLLECTION OF
DELINQUENT ACCOUNTS
26. What means are available to the Bureau to compel a Taxpayer to produce his
books of accounts and other records? A Taxpayer shall be requested, in writing, not
more than two (2) times, to produce his books of accounts and other pertinent
accounting records, for inspection. If, after the Taxpayers receipt of the second
written request, he still fails to comply with the requirements of the notice, the
Bureau shall then issue him a Subpoena Duces Tecum.
27. What course of action shall the Bureau take if the Taxpayer fails to comply with
the Subpoena Duces Tecum?
If, after the Taxpayer fails, refuses, or neglects to comply with the requirements of
the Subpoena Duces Tecum, the Bureau may:
File a criminal case against the Taxpayer for violation of Section 5 as it relates to
Sections 14 and 266, of the NIRC, as amended; and/or
Initiate proceedings to cite the Taxpayer for contempt, under Section 3(f), Rule 71
of the Revised Rules of Court.
28. What alternatives are open to Government for the collection of delinquent
accounts?
Once an assessment becomes final and demandable, the Government may employ
any, or all, of the following remedies for the collection of delinquent accounts:
Distraint of personal property;
Levy of real property belonging to the Taxpayer;
Civil Action; and
Criminal Action.
29. What is "Distraint of Personal Property"? Distraint of personal property involves
the seizure by the Government of personal property - tangible or intangible - 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 "Levy of Real Property"? Levy of real property refers to the same act of
seizure, but in this case of real property, and interest in or rights 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 following such levy.
31. In what time period must collection be made? Any internal revenue tax, which
has been assessed within the period prescribed shall be collected within three (3)
years from date of assessment. However, tax fraud cases may be collected by
distraint or levy or by a court proceeding within five (5) years from assessment of
the tax or from the last waiver.
2. DEFINITION:
A. REVENUE MEMORANDUM CIRCULARS - Revenue Memorandum
Circular (RMCs) are issuances that publish pertinent and applicable
portions, as well as amplifications, of laws, rules, regulations and
precedents issued by the BIR and other agencies/offices.
B. REVENUE MEMORANDUM ORDERS - Revenue Memorandum Orders
(RMOs) are issuances that provide directives or instructions; prescribe
guidelines; and outline processes, operations, activities, workflows,
methods and procedures necessary in the implementation of stated
policies, goals, objectives, plans and programs of the Bureau in all areas of
operations, except auditing.
C. REVENUE REGULATIONS - Revenue Regulations (RR) are issuances
signed by the Secretary of Finance, upon recommendation of the
Commissioner of Internal Revenue, that specify, prescribe or define rules
and regulations for the effective enforcement of the provisions of the
National Internal Revenue Code (NIRC) and related statutes.