Preparing Income Tax Returns For The April 15

Filing
(Considering All New BIR Regulations
Involving The Current Procedures &
Computations)
Featuring
PRE-AUDIT OF TAX RETURNS FILED
The New Rules on Deductibility & Limitations on Expenses
ATTENTION: Chief Accountants, Treasurers, Administrative Officers, HRD, Business
Owners/Employers
BIR shall now PRE-AUDIT TAX RETURNS FILED AND CHECK PROPER FILLING-UP AND APPLICATION OF
TAX LAWS. SHALL CHECK attachments of documentary requirements affecting the filing of income tax returns and
compliance by corporations & by individuals in business or practice of professions. Taxpayers should comply properly
to prevent problems in audit and investigation. Additional disclosures MANDATED UNDER THE INTERNATIONAL
FINANCIAL REPORTING STANDARDS (IFRS) and other requirements to be disclosed in the NOTES TO THE
FINANCIAL STATEMENTS.
I.
PRE-AUDIT OF TAX RETURN FILED
- The validity of claims for income tax holiday, tax exemption and other claimed tax incentives, which resulted in
non-payment or reduced
payment of tax due;
- Application and proper computation of the minimum corporate income tax (MCIT);
- Base computations of MCIT for trading and merchandising concern
- Base computation of MCIT for service business
- Base computation of MCIT for manufacturing concern
- Treatment of Excess MCIT
- Claimed creditable withholding taxes against tax due and substantiation of claims through the certificates of
withholding taxes attached to the tax returns or submitted electronically to the BIR; correct utilization of Tax Credit
Certificates which should be duly supported by an approved Tax Debit Memo issued by the authorized Revenue
Official;
- Correctness of deductions claimed by taxpayers who opted for Optional Standard Deduction (OSD);
- Base computation of OSD for individuals engaged in business or practice of profession
- Base computation of OSD for corporation
- Accuracy and applicability of the computation of the Net Operating Loss Carry-Over (NOLCO);
- Completeness of the required attachments to annual ITRs like:
- Statement of Management Responsibility (SMR)
- Statement of Retained Earnings
- Comprehensive and comparative Balance Sheet
- Comprehensive and comparative Income Statements
- Cash Flow/ Statement of Changes in Financial Position
- Other attachments
II.
NEW INCOME TAX FORMS for 2012 (Interactive/EFPS and other details)
- HOW TO FILL-UP THE NEW ITR FORMS: details of specific changes and modifications
- Requirements to declare of income subject to final tax such as interest income, dividend, prizes and winnings,
including real property transactions
- Requirements to declare income exempted from income tax like proceeds of life insurance
- Information on special deductions like senior citizens, breastfeeding, adopt-a-school etc.

- Details of special exemption for those with preferential rates PER ACTIVITY with effective & expiry dates
- Requirement/proof of exemption or special benefits like rulings under specific laws
- Clarifying the taxability of clubs organized and operated exclusively for pleasure, recreation, and other NON-PROFIT
PURPOSES
III.
NEW LIMITATIONS AND/OR ALLOWABLE EXPENSES
- Limitations on entertainment and representation expenses
- Limitations of donations to charitable contributions
- Limitations on interest expenses
- Limitations on depreciation expenses
o
Only one vehicle for land transportation is allowed for the use of an official or employee with LIMITED
AMOUNT not exceed P2.4M
o
All maintenance expenses on account of non-depreciable vehicles for taxation purposes are disallowed in its
entirety
IV.
OTHER REQUIRED ATTACHMENTS TO THE INCOME TAX RETURN
- Summary of taxes, duties and licenses paid or accrued
- Summary of all importations, amount of customs duties paid and tariff fees paid or accrued excise taxes classified
by major products paid
- Summary of documentary stamp tax (DST) paid and all paid & other taxes, local, national, real estate, permits
- Summary of amount of withholding taxes categorized by compensation, expanded, final etc.

RMO 25-2012
Subject: Guidelines and Procedures in the Pre-audit of Annual Income Tax Returns of Individuals
Engaged in Business / Practice of Profession and Corporate Taxpayers Filed at the Revenue District
Offices.
I.

BACKGROUND
To ensure strict compliance by taxpayers with internal revenue laws and regulations, in
relation to;
1. The requisites of deductibility of certain expenses and
2. Payment of correct income tax, annual income tax returns (ITRs) filed for the current
year
Shall be subject to pre-audit by the RDOs

II.

COVERAGE
This Order shall cover the pre-audit of all the annual ITRs filed by
3. Individual taxpayers engaged in business or in the practice of their profession and
4. Corporate taxpayers that are registered in the RDOs

III.

GUIDELINES AND PROCEDURES

1. The pre-audit of annual ITRs
1. Shall be conducted without field investigation and
2. Shall not be covered by electronic Letter of Authority (eLA) or Tax Verification
Notice (TVN)
2. The RDO shall issue to the Revenue Officer (RO) a memorandum, in duplicate
copies, assigning the pre-audit of annual ITRs in batch, indicating therein the
following:
2.1 Name of RO assigned;
2.2 Name of taxpayers contained in the batch;
2.3 TIN of the taxpayers included in the batch; and
2.4 Document Locator Number (DLN) per tax return.
The RO assigned shall acknowledge receipt of the duplicate copies of the ITRs in the
duplicate copy of the memorandum which shall also serve as the RDOs file copy.
The original copy of the memorandum shall be attached to the batch containing
duplicate copies of the annual ITRs after the assigned RO has completed the pre-audit
thereof.
For revenue regions where the storage and processing of tax returns are assigned to the
Data Processing Divisions, pre-audit shall be done by the RO by viewing the imaged
returns.
Only where there are discrepancies/findings upon pre-audit shall the tax returns be
printed.

What are the PRE-AUDIT details of verification?

3. Mathematical computation of Income Tax due and payment;
CHECK proper use of Income tax rates
- Individuals (graduated 5-32%)
- Corporation regular rate 30%

Rate of Income Tax

The regular / normal rate of income tax is 30% of net taxable income. However,
preferential/special rate is accorded to a taxpayer pursuant to the provisions of
the Tax Code and/or any prevailing special laws.
4. CHECK and validate through CBR payments, including 2nd instalment, (if any).

When & Where to File & Pay

5. For Installment Payments
When the tax due exceeds Php 2,000, the taxpayer may elect to pay in two (2)
equal instalments:
1st instalment
Paid at the time the return is filed
2nd instalment
Paid on or before July 15 of same year

PENALTIES
1. A surcharge of 25% for each of the following violations:
a) Failure to file any return and pay the amount of tax or instalment due on or
before the due date
b) Unless otherwise authorized by the Commissioner, filing a return with a person
or office other than those with whom it is required to be filed
c) Failure to pay the full or part of the amount of tax shown on the return, or the
full amount of tax due for which no return is required to be filed on or before
the due date
d) Failure to pay the deficiency tax within the time prescribed for its payment in
the notice of assessment

2. A surcharge of 50% of the tax or of the deficiency tax shall be imposed in case of
wilful neglect to file the return within the period prescribed by the Tax Code and/or
by rules and regulations or in case a false or fraudulent return is filed
3. Interest at the rate of 20% per annum, or such higher rate as may be prescribed by
rules and regulations, on any unpaid amount of tax, from the date prescribed for the
payment until it is fully paid
4. Compromise penalty, pursuant to existing/applicable revenue issuances

6.
7.

Correctness and applicability of PERSONAL AND ADDITIONAL EXEMPTIONS CLAIMED

by individuals against the registration records per ITS
Correctness and validity of the following deductions/expenses subject to the
CEILING/LIMITATIONS prescribed under existing laws and regulations:
7.1 Interest expense;
7.2 Charitable and other contributions;
7.3 Representation expense and
7.4 Miscellaneous expense / Depreciation expense

Attachments Required
BIR Form 1702
1) Certificate of Independent CPA
(The CPA Certificate is required if the gross quarterly sales, earnings, receipts or output exceed P
150,000.00)
2) Supplemental Form (Schedule 4) for taxpayers with multiple activities per tax regime.
3) Account Information Form (AIF) and/or Financial Statements (FS), including the following
schedules prescribed under existing revenue issuances which must form part of the Notes to the
Audited FS:
4) Sales / Receipts / Fees
5) Cost of Sales / Services
6) Non-Operating & Taxable Other Income
7) Itemized Deductions (if taxpayer did not avail of OSD)
8) Taxes and Licenses
9) Other information prescribed to be disclosed in the notes to FS
10) Statement of Managements Responsibility (SMR) for Annual Income Tax Return
11) Certificate of Income Payments not subjected to Withholding Tax (BIR Form No. 2304)
12) Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307)
13) Duly approved Tax Debit Memo, if applicable
14) Proof of prior years excess credits, if applicable
15) Proof of Foreign Tax Credits, if applicable
16) For amended return, proof of tax payment and the return previously filed
17) Certificate of Tax Treaty Relief/Entitlement issued by the concerned Investment Promotion
Agency (IPA)