RMO No. 23-2005: Prescribes the policies and procedures in the audit/investigation of withholding tax liabilities for taxable years 2003 and 2004, including withholding tax on fringe benefits

Key points

1. Taxpayers covered. Covered are general professional partnerships; the top 100 corporate taxpayers per district office whose returns show a higher growth in cost of sales plus operating expenses than in sales, or an abnormal increase in a particular expense; taxpayers with third party information; taxpayers with a substantial drop in 2004 withholding tax remittances versus 2003; and closely-held and family corporations. For closely-held corporations where the controlling stockholder receives the fringe benefits, the BIR will consider a Letter of Authority (LA) for that stockholder’s income tax audit.
2. Selection and approval. The RDO draws up the audit list and submits it to the Regional Director on or before September 30, 2005. The Regional Director sends approved and disapproved lists to the Deputy Commissioner-Operations Group (DCIR-OG) on or before October 5, 2005. LAs/ANs may be issued once the list is approved, and the DCIR-OG may order cancellation for violations.
3. Who audits. Only Revenue Officers (ROs) of the Assessment Group may audit. The same RO/Group Supervisor may not investigate the same taxpayer the next year. An RO may handle no more than five (5) withholding tax LA cases at one time.
4. Time to finish. Audit and report are due within 90 days from issuance of the LA/AN. If taxpayer constraints delay it, only one revalidation is allowed, with a progress report noted by the GS and approved by the RDO. The LA/AN is stamped “Revalidated on ____” and signed by the Regional Director.
5. Review by Assessment Division. The Assessment Division reviews all dockets before a preliminary/final assessment notice, termination letter, and tax credit certificate or refund check. It returns dockets to the investigating office for additional deficiencies, excessive assessments, or missing procedures or documents, and may not adjust the audit reports itself.
6. Register. The Regional Director keeps a complete and updated register of all LAs/ANs, including issuances, revalidations, cancellations and case closures. The LA Monitoring System is used where it has been rolled out.

Who is affected

• General professional partnerships
• Top 100 corporate taxpayers per district office
• Closely-held and family corporations
• Revenue District Officers, Regional Directors and Revenue Officers

Deadlines and effectivity

• Taxable years 2003 and 2004
• RDO list due September 30, 2005
• Regional Director lists due October 5, 2005
• Audit report within 90 days from LA/AN issuance