RMO No. 12-2007: Prescribes the 2007 Audit Program for Revenue District Offices

Key points

1. Coverage. The program covers 2006 tax returns, including fiscal year returns ending after June 30, 2006 but before December 31, 2006. No audit of 2005 returns starts, except tax credit/refund claims, estate tax returns and tax clearance requests due to retirement, or with the Commissioner’s prior written approval.
2. Mandatory audit cases. These include income tax refund or TCC claims and carry-overs above P 100,000.00 or with gross sales/receipts above P 10,000,000.00 (Regions 5 to 8, with some RDO exceptions) or P 5,000,000.00 (other regions). They also include VAT refund or credit claims above P 100,000.00, estate tax returns above set thresholds, and clearance requests for retiring or reorganizing taxpayers with gross assets or sales above P 10,000,000.00.
3. Priority taxpayers. Top priority covers hotels and tourism establishments, stockbrokers and real property dealers, hospitals and clinics, professionals, and government contractors. Other priority groups include low tax payers (income tax under 2% or VAT under 3% of gross), non-filers, no-operations filers, net loss filers, exempt filers, the Top 10,000 corporations, and taxpayers newly covered by VAT under RA 9337. The Revenue District Officer may pick others, up to 20% of audit candidates.
4. Tax Verification Notices and pre-audit. Cases below the thresholds, excise tax and erroneous or double payment claims, protested cases and some pre-audit cases are covered by Tax Verification Notices (TVNs). Pre-audit is limited to the face of the return, certificates and proof of advance payments, and deductibility limits, with no fieldwork.
5. Estate tax and Letters of Authority. One LA/TVN is issued per taxable year to cover all tax liabilities. Estate tax cases with other liabilities get three separate LAs, and the CAR may be issued before the audit of other liabilities is done only if a bond is posted. Mission orders for audit are prohibited, and only Revenue Officers in the Assessment Group may audit.
6. Targets and deadlines. Audit collections must equal at least 3% of voluntary compliance collections, and audit output must be at least 30% of corporate and individual business taxpayers. Reports of investigation are due within 120 days for Very Large/Large cases, 90 days for Medium, and 60 days for Small/TVN, and within 120 days from complete documents for VAT claims.

Who is affected

• Revenue District Offices and Regional Directors
• Taxpayers selected for 2006 return audits

Deadlines and effectivity

• Audit coverage: 2006 tax returns
• Report of investigation: 120 days (Very Large/Large), 90 days (Medium), 60 days (Small/TVN)
• VAT refund/credit claims: 120 days from submission of complete documents