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 Re enue !fficer to examine and scrutini"e a Taxpayer#s boo$s of accounts and other accounting records% in order to determine the Taxpayer#s correct internal re enue tax liabilities. &. Who issues the Letter of Authority? Letter of Authority% for audit'in estigation of taxpayers under the (urisdiction of )ational !ffice% shall be issued and appro ed by the *ommissioner of +nternal Re enue% while% for taxpayers under the (urisdiction of Regional !ffices% it shall be issued by the Regional ,irector. -. When must a Letter of Authority be ser ed? A Letter of Authority must be ser ed to the concerned Taxpayer within thirty .&/0 days from its date of issuance% otherwise% it shall become null and oid. The Taxpayer shall then ha e the right to refuse the ser ice of this LA% unless the LA is re alidated. 1. 2ow often can a Letter of Authority be re alidated? A Letter of Authority is re alidated through the issuance of a new LA. 2owe er% a Letter of Authority can be re alidated3 !nly once% for LAs issued in the Re enue Regional !ffices or the Re enue ,istrict !ffices4 or Twice% in the case of LAs issued by the )ational !ffice. Any suspended LA.s0 must be attached to the new LA issued .R5! &67660. 8. 2ow much time does a Re enue !fficer ha e to conduct an audit?A Re enue !fficer is allowed only one hundred twenty .12/0 days from the date of receipt of a Letter of Authority by the Taxpayer to conduct the audit and submit the re9uired report of in estigation. +f the Re enue !fficer is unable to submit his final report of in estigation within the 12/7day period% he must then submit a :rogress Report to his 2ead of !ffice% and surrender the Letter of Authority for re alidation. ;. 2ow is a particular taxpayer selected for audit?!fficers of the <ureau .Re enue ,istrict !fficers% *hief% Large Taxpayer Assessment ,i ision% *hief% =xcise Taxpayer !perations ,i ision% *hief% :olicy *ases and Tax >raud ,i ision0 responsible for the conduct of audit'in estigation shall prepare a list of all taxpayer who fall within the selection criteria prescribed in a Re enue 5emorandum !rder issued by the *+R to establish guidelines for the audit program of a particular year. The list of taxpayers shall then be submitted to their respecti e Assistant *ommissioner for pre7appro al and to the *ommissioner of +nternal Re enue for final appro al. The list submitted by R,! shall be pre7appro ed by the Regional ,irector and finally appro ed by Assistant *ommissioner% Assessment ?er ice .R5!s 8-7@@% 8;7@@% 1672/// and 1@72///0. 6. 2ow many times can a taxpayer be sub(ected to examination and inspection for the same taxable year? A taxpayer#s boo$s of accounts shall be sub(ected to examination and inspection only once for a taxable year% except in the following casesA When the *ommissioner determines that fraud% irregularities% or mista$es were committed by Taxpayer4 When the Taxpayer himself re9uests a re7in estigation or re7examination of his boo$s of accounts4 When there is a need to erify the Taxpayer#s compliance with withholding and other internal re enue taxes as prescribed in a Re enue 5emorandum !rder issued by the *ommissioner of +nternal Re enue. When the Taxpayer#s capital gains tax liabilities must be erified4 and When the *ommissioner chooses to exercise his power to obtain information relati e to the examination of other Taxpayers .?ecs. 1 and 2&1% )+R*0. @. What are some of the powers of the *ommissioner relati e to the audit process?+n addition to the authority of the *ommissioner to examine and inspect the boo$s of accounts of a Taxpayer who is being audited% the *ommissioner may alsoA !btain data and information from pri ate parties other than the Taxpayer himself .?ec.1% )+R*04 and *onduct in entory and sur eillance% and prescribe presumpti e gross sales and receipts .?ec. 8% )+R*0. 1/. What is a )otice for +nformal *onference ?A )otice for +nformal *onference is a written notice informing a Taxpayer that the findings of the audit conducted on his boo$s of accounts and accounting records indicate that additional taxes or deficiency assessments ha e to be paid. +f% after the culmination of an audit% a Re enue !fficer recommends the imposition of deficiency assessments% this recommendation is communicated by the <ureau to the Taxpayer concerned during an informal conference called for this purpose. The Taxpayer shall then ha e fifteen .110 days from the date of his receipt of the )otice for +nformal *onference to explain his side. 11. Within what time period must an assessment be made?An assessment must be made within three .&0 years from the last day prescribed by law for the filing of the tax return for the tax that is being sub(ected to assessment or from the day the return was filed if filed late. 2owe er% in cases in ol ing tax fraud% the <ureau has ten .1/0 years from the date of disco ery of such fraud within which to ma$e the assessment. Any assessments issued after the applicable period are deemed to ha e prescribed% and can no longer be collected from the Taxpayer% unless the Taxpayer has pre iously executed a Wai er of ?tatute of Limitations. 12. What is BCeopardy AssessmentB? A Ceopardy Assessment is a tax assessment made by an authori"ed Re enue !fficer without the benefit of complete or partial audit% in light of the R!#s belief that the assessment and collection of a deficiency tax will be (eopardi"ed by delay caused by the Taxpayer#s failure toA *omply with audit and in estigation re9uirements to present his boo$s of accounts and'or pertinent records% or ?ubstantiate all or any of the deductions% exemptions or credits claimed in his return.

1&. What is a :re7Assessment )otice .:A)0? The :re7Assessment )otice is a communication issued by the Regional Assessment ,i ision% or any other concerned <+R !ffice% informing a Taxpayer who has been audited of the findings of the Re enue !fficer% following the re iew of these findings. +f the Taxpayer disagrees with the findings stated in the :A)% he shall then ha e fifteen .110 days from his receipt of the :A) to file a written reply contesting the proposed assessment. 1-. Dnder what instances is :A) no longer re9uired? A :reliminary Assessment )otice shall not be re9uired in any of the following cases% in which case% issuance of the formal assessment notice for the payment of the taxpayer#s deficiency tax liability shall be sufficientA When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer4 or When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent4 or When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to ha e carried o er and automatically applied the same amount claimed against the estimated tax liabilities for the taxable 9uarter or 9uarters of the succeeding taxable year4 or When the excise tax due on excisable articles has not been paid4 or When an article locally purchased or imported by an exempt person% such as% but not limited to% ehicles% capital e9uipment% machineries and spare parts% has been sold% traded or transferred to non7exempt persons. 11. What is a )otice of Assessment'>ormal Letter of ,emand? A )otice of Assessment is a declaration of deficiency taxes issued to a Taxpayer who fails to respond to a :re7Assessment )otice within the prescribed period of time% or whose reply to the :A) was found to be without merit. The )otice of Assessment shall inform the Taxpayer of this fact% and that the report of in estigation submitted by the Re enue !fficer conducting the audit shall be gi en due course. The formal letter of demand calling for payment of the taxpayer#s deficiency tax or taxes shall state the facts% the law% rules and regulations% or (urisprudence on which the assessment is based% otherwise% the formal letter of demand and the notice of assessment shall be oid.
Ebac$ to topF

TAXPAYERS OBLIGATIONS AND PRIVILEGES

18. What is re9uired of a taxpayer who is being audited?A Taxpayer who is being audited is obliged toA ,uly ac$nowledge his receipt of the appropriate Letter of Authority upon its presentation by the Re enue !fficer authori"ed to conduct the audit by affixing in the Letter of Authority the name of the recipient and the date of receipt. :resent within a reasonable period of time% his boo$s of accounts and other related accounting records that may be re9uired by the Re enue !fficer4 and ?ubmit the necessary schedules as may be re9uested by the Re enue !fficer within a reasonable amount of time from his .Taxpayer#s0 receipt of the Letter of Authority. 1;. What is the recourse of a Taxpayer who cannot submit the documents being re9uired of him within the prescribed period of time? +f a Taxpayer% belie ing that he cannot present his boo$s of accounts and'or other accounting records% intends to re9uest for more time to present these documents in order to a oid the issuance of a Ceopardy Assessment% the Taxpayer may execute what is referred to as a Wai er of the ?tatute of Limitations. 16. What is a Wai er of the ?tatute of Limitations? The Wai er of the ?tatute of Limitations is a signed statement whereby the Taxpayer con eys his agreement to extend the period within which the <ureau may alidly issue an assessment for deficiency taxes. +f a Taxpayer opts to execute a Wai er of the ?tatute of Limitations% he shall li$ewise be% in effect% wai ing his right to in o$e the defense of prescription for assessments issued after the reglementary period. )o Wai er of the ?tatute of Limitations shall be considered alid unless it is accepted by a duly authori"ed <ureau official. 1@. +f a Taxpayer does not agree with the assessment made following an audit% can he protest this Assessment?Ges% 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. 2/. What are the characteristics of a alid protest? A protest is considered alid if it satisfies the following conditionsA +t is made in writing% and addressed to the *ommissioner of +nternal Re enue4 +t contains the information% and complies with the conditions re9uired by ?ec. 8 of Re enue Regulations )o. 127614 to witA a.0 )ame of the taxpayer and address for the immediate past three .&0 taxable year. b.0 )ature of re9uest whether rein estigation or reconsideration specifying newly disco ered e idence he intends to present if it is a re9uest for in estigation. c.0 The taxable periods co ered. d.0 Assessment number. e.0 ,ate of receipt of assessment notice or letter of demand.

f.0 +temi"ed 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. >or this purpose% the protest shall not be deemed alidly filed unless payment of the agreed portion of the tax is paid first. g.0 The itemi"ed schedule of the ad(ustments with which the taxpayer does not agree. h.0 A statement of facts and'or law in support of the protest. The taxpayer shall state the facts% applicable law% rules and regulations or (urisprudence on which his protest is based% otherwise% his protest shall be considered oid and without force and effect on the e ent the letter of protest submitted by the taxpayer is accepted% the taxpayer shall submit the re9uired documents in support of his protest within sixty .8/0 days from date of filing of his letter of protest% otherwise% the assessment shall become final% executory and demandable.

+t is filed within thirty .&/0 days from the Taxpayer#s receipt of the )otice of Assessment and formal Letter of ,emand. 21. +n the e ent the *ommissioner#s duly authori"ed representati e denies a Taxpayer#s protest% what alternati e course of action is open to the Taxpayer? +f a protest filed by a Taxpayer be denied by the *ommissioner#s duly authori"ed representati e% the Taxpayer may re9uest the *ommissioner for a reconsideration of such denial and that his tax case be referred to the <ureau#s Appellate ,i ision. The Appellate ,i ision ser es as a B*ourtB% where both parties% i.e. the Re enue !fficer on one hand% and the Taxpayer on the other% can present testimony and e idence before a 2earing !fficer% to support their respecti e claims. 22. What recourse is open to a Taxpayer if his re9uest for reconsideration is denied or his protest is not acted? ?hould the Taxpayer#s re9uest for reconsideration be denied or his protest is not acted upon within 16/ days from submission of documents by the *ommissioner% the Taxpayer has the right to appeal with the *ourt of Tax Appeals .*TA0. Any appeal must be done within thirty .&/0 days from the date of the Taxpayer#s receipt of the *ommissioner#s decision denying the re9uest for reconsideration or from the lapse of the 16/ day period counted from the submission of the documents. .?ec. 226 of the Tax *ode% as amended0. 2&. +f the Taxpayer is not satisfied with the *TA#s decision% can he appeal the decision to a higher *ourt? Ges% he can. ,ecisions of the *ourt of Tax Appeals may be appealed with the *ourt of Appeals within fifteen .110 days from the Taxpayer#s receipt of the *TA#s decision. +n the e ent that the Taxpayer is li$ewise unsatisfied with the decision of the *ourt of Appeals% he may appeal this decision with the ?upreme *ourt. 2-. *an a Taxpayer claim a refund or tax credit for erroneously or illegally collected taxes?Ges% he can. The Taxpayer may file such a claim with the *ommissioner of +nternal Re enue .?ec.22@% )+R*0% within two .20 years from the payment of the tax or penalty sought to be refunded. >ailure of the Taxpayer to file such a claim within this prescribed period shall result in the forfeiture of his right to the refund or tax credit. 21. +f a Taxpayer has filed a claim for refund and the <ureau has yet to render a decision on this claim% can the Taxpayer ele ate his claim to the *TA? Ges% he can% if the two .20 year period stated abo e is about to end% and the *ommissioner has yet to render a decision on the claim. .Hibbs . *ollector% L71&-1&% >ebruary 2@% 1@8/0.
Ebac$ to topF

REMEDIES OF THE BUREAU IN THE AUDIT PROCESS AND COLLECTION OF DELINQUENT ACCOUNTS
28. What means are a ailable to the <ureau to compel a Taxpayer to produce his boo$s of accounts and other records? A Taxpayer shall be re9uested% in writing% not more than two .20 times% to produce his boo$s of accounts and other pertinent accounting records% for inspection. +f% after the Taxpayer#s receipt of the second written re9uest% he still fails to comply with the re9uirements of the notice% the <ureau shall then issue him a ?ubpoena ,uces Tecum. 2;. What course of action shall the <ureau ta$e if the Taxpayer fails to comply with the ?ubpoena ,uces Tecum? +f% after the Taxpayer fails% refuses% or neglects to comply with the re9uirements of the ?ubpoena ,uces Tecum% the <ureau mayA >ile a criminal case against the Taxpayer for iolation of ?ection 1 as it relates to ?ections 1- and 288% of the )+R*% as amended4 and'or +nitiate proceedings to cite the Taxpayer for contempt% under ?ection &.f0% Rule ;1 of the Re ised Rules of *ourt. 26. What alternati es are open to Ho ernment for the collection of delin9uent accounts? !nce an assessment becomes final and demandable% the Ho ernment may employ any% or all% of the following remedies for the collection of delin9uent accountsA ,istraint of personal property4 Le y of real property belonging to the Taxpayer4 *i il Action4 and *riminal Action. 2@. What is B,istraint of :ersonal :ropertyB? ,istraint of personal property in ol es the sei"ure by the Ho ernment of personal property 7 tangible or intangible 7 to enforce the payment of taxes% followed by the public sale of such property% if the Taxpayer fails to pay the taxes oluntarily.

&/. What is BLe y of Real :ropertyB? Le y of real property refers to the same act of sei"ure% 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 le y shall be sold in a public sale% if the taxes in ol ed are not oluntarily paid following such le y. &1. +n what time period must collection be made? Any internal re enue tax% which has been assessed within the period prescribed shall be collected within three .&0 years from date of assessment. 2owe er% tax fraud cases may be collected by distraint or le y or by a court proceeding within fi e .10 years from assessment of the tax or from the last wai er.