June 8, 1995

REVENUE MEMORANDUM ORDER NO. 17-95

SUBJECT : Audit Program for 1995

TO : All Internal Revenue Officers and Others Concerned

I. Objectives of the Audit Program

The fundamental goal of enforcement (audit and investigation) activities is not

primarily to increase enforcement revenue, but rather (a) to improve overall voluntary
compliance and (b) to collect the correct amount of tax from taxpayers.

The purpose of an audit is determine the taxpayer's substantially correct tax

liability. To accomplish this objective, a quality audit must be performed. The
concept of a quality audit, giving due consideration to the effective use of BIR
resources, necessitates the utilization of those procedures and audit techniques
appropriate for the determination of that liability. Such a concept embraces the
following:

(a) That the taxpayer's books and records will be reviewed in

sufficient depth to reach a supportable conclusion regarding all
items of a material tax consequence;

(b) That appropriate income investigations will be performed where

warranted to ensure the proper and complete ascertained; and

(c) That the responsibilities of the taxpayer regarding the filing of all
tax and information returns have been ascertained; and

(d) That the conclusions expressed are documented in sufficient detail

to enable the reader to comprehend the process whereby such a
conclusion was reached.

II. Selection and Audit Policies

A. All Letters of Authority (LA) shall be issued and approved by the

Revenue District Officers. Tax fraud cases and the issuance of LAs by the
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Intelligence and Investigation Service and the Special Investigation Division of the
regional officers shall be covered by a separate revenue issuance.

B. All tax audit, including verification of claims for tax credits and refunds,
shall be covered by LAs, except the following:

1. Capital gains tax returns for transactions involving sale or transfer

of real property and/or shares of stocks;

2. Protested cases;

3. Estate tax return with a gross estate of One Million Pesos

(P1,000,000.00) or below for Revenue Region Nos. 5, 6, 7 and 8 (Valenzuela,
Manila, Quezon City and Makati) and Five Hundred Thousand Pesos
(P500,000.00) or below for all other regions, provided that the properties of the
decedent are covered by only one revenue district office;

4. Donor's tax returns where the gross gift during the same taxable
year amounts to Five Hundred Thousand Pesos (P500,000.00) or below for
Revenue Region Nos. 5, 6, 7 and 8 and Two Hundred Thousand Pesos
(P200,000.00) or below for all other regions, providing that the properties
donated are located within the same revenue district office;

5. Claims for tax credit or refunds of individual taxpayers arising

from business income where all of the following conditions are present:

a. For Revenue Regions 5,6 7, and 8;

(1) the amount of the claim does not exceed P10,000; and

(2) the gross sales/receipts do not exceed P1,000,000.

b. For all other Revenue Regions outside of Metro Manila:

BIR Forms 1717 will be prepared for all of the above mentioned
exceptions in accordance with Section VI, Reporting Requirements.

C. Package audit system procedures shall be followed, regardless of the

amount of gross sales/receipts of the taxpayer.

D. No LA shall be issued unless the duplicate copy of the tax return of the
taxpayer for the taxable year covered by the LA is attached thereto except in the
following cases:

1. The tax return of the taxpayer cannot be located in the Revenue

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 District Office. In this case, a certification to this effect (RDO) shall be issued
and attached to the LA.

2. The basis of the LA or tax cases is the result of:

a. Tax Mapping Program
b. Third Party Information Program
E. For large taxpayers or complex tax cases, more than one Revenue Officer
in the same RDO may be assigned to conduct the audit.

F. One LA shall be issued for each taxable year;

G. No LA shall be revalidated without an attached progress report from the

Revenue for the immediately succeeding period by the same Revenue Officer except
in fraud cases and policy cases assigned by the Commissioner or Deputy
Commissioner to be handled by revenue officers assigned in the RDO.

H. Taxpayers who have been examined for the prior year shall not be
investigated for the immediately succeeding period by the same Revenue Officer
except in fraud cases and policy cases assigned by the Commissioners to be handled
by revenue officers assigned in the RDO.

I. Joint and coordinated examinations shall be undertaken by and between

Revenue Officers of Different revenue district offices in the following cases:

1. Estate tax cases where the real properties are located in more than
one regional/district office;

2. Large taxpayers;

3. Multinational companies;

4. Interrelated taxpayers; and

5. Other complex tax cases.

J. Correspondence cases are strictly prohibited. All 1993 and prior year tax
returns not currently under audit or pending refund which are not part of the Audit
Program for 1995 shall be transmitted to the Administrative Division effective as of
date of this RMO. Tax returns transmitted to the Administrative Division will be
stored in a searchable order for ease of retrieval.

K. Initial workload determination for every Revenue Officer will be a

minimum of ten (10) cases and a maximum workload of twenty-five (25) cases. Each
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LA is counted as one case.

L. The number of tax cases handled by each Revenue Officer involving old
pending cases (PPY) (cases with one year or less before prescription), tax
refund/credit cases, cases under reinvestigation, estate and donor's tax cases and cases
involving taxpayers retiring from business should not exceed 25 percent of his total
number of tax cases at only time during the year. This is to ensure that these cases are
given top priority by the Revenue Officers in conducting their audit activities during
the year.

M. The proportion between individual and corporate taxpayers shall be as

follows:
50% — individual
50% — corporate
N. LAs will not be issued and revenue district offices will not initiate audits
on tax returns that do not match the selection criteria outlined in this Revenue
Memorandum Order.

O. New Tax cases may be assigned to Revenue Officers only after they have
completed and reported the following pending with them as of April 30, 1995:
1. devolved cases from the National Office;
2. prescribing cases/dockets;
3. reinvestigations; and
4. tax refund/credit cases assigned before March 1, 1995
III. 1995 Audit Work Plan

The audit work plan for 1995 for each revenue district (RDO) is Page 3 of
Form 19.71, "Total Closed Cases/Dockets Year To Date" was used to project total
closed cases for the one-year period of April 1994 thorough May 1995. The audit plan
for RDOs for which no data was available from Form 19.17 is computed based on the
average percent of audit plan accomplished for RDOs with Form 19.71 data. For
example, RDOs with data showed an average audit plan accomplishment of 140.4
percent. The 1994 audit plan for RDOs with no Form 19.71 data was increased by this
percentage to project total accomplishments.

Using the Form 19.71 data and the number of personnel shown on the 1994
audit plan, a rate was computed. This rate was used to compute the 1995 audit plan.
The 1994 audit plan established a minimum rate of 15 cases per Revenue Officer or
the actual rate for the RDO, whichever was higher. Form 19.71 data show that the
average rate accomplished was 27 cases per Revenue Officer. This represents a
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significant increase in accomplishments. However, since this represents almost a
doubling of the rate used in the 1994 audit plan, only one-half of the increase or a rate
of 22 cases per Revenue Officer was used as the minimum rate for the 1995 audit
plan. The rate was multiplied by the current number of Revenue Officers in
Assessment activities to compute the RDOs audit plan. Grade IV Revenue Officers
were excluded.

Thus, for purposes of illustration, a revenue district officer with 20 Revenue

Officers and a rate of 22 will have an annual work plan of 440 cases (20 x 22) for
1995. The RDO must complete 440 cases in order to accomplish the annual work
plan. However, the work plan may be exceeded provided written authorization is
secured from the Assistant Commissioner Assessment Service. (The work plan for all
RDOs is shown in Annex A.)

The 1995 audit plan represents the minimum number of audits that should be
completed in 1995, that is from July 1, 1995 through June 30, 1996, consistent with
the guidelines in this RMO. The rate represents, on an average, what each Revenue
Officer should accomplish during the year; it does not represents the amount of case
inventory needed to produce the planned accomplishments. Depending on the
efficiency of individual Revenue Officers, the amount of inventory on hand at any
time may be equal to or less than the maximum of 25 cases as specified in Section II
above. Revenue District Officers and Revenue Regional Directors should perform
ongoing workload reviews to ensure that Revenue Officers are effectively managing
their inventories and time. A revenue memorandum order prescribing the methods
and procedures for conducting workload reviews will be issued at a future date.

IV. Selection Criteria

The most current taxable year filed should be assigned for audit. This years
ending through June 30, 1995. No 1994 tax return will be audited before July 1, 1995,
the effectivity date of this RMO No audits of taxable year 1993 returns will be
initiated after June 30, 1995.

New tax cases will be distributed and assigned to Revenue Officers in

accordance with the following instructions:

A. Mandatory

1. Tax credit/refund cases arising from erroneously or illegally

collected/paid taxes greater than P20,000 (TCR);

2. Taxpayer selected for tax audit based on third party information

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 (TPI);

3. Individuals (self-employed and/or professional) with gross/receipts

of P5 million or above (MIN);

4. Corporations, including partnerships, with gross assets of P50

million or above (MCO); and

5. Taxpayer selected for audit based on the result of tax mapping

programs (Use Selection Code TPI).

If the number of taxpayers under this category exceeds the number of cases in
the annual audit work plan for the RDO, the Revenue District Officer will rank the
individual and corporate taxpayers on the basis of the criterion stated above and select
for audit those from the top (i.e. highest income or highest assets) in descending order
until the maximum number is reached.

The selection criteria are listed in order of priority. Lower priority tax returns
will not be audited until all higher priority audits are assigned. (See Section V,
Deviation From Policy

B. Priority Target Population for 1995

The priority target populations for 1995 are based on audit results submitted on
Forms 1717 and analyzed by the Assessment Service. As analysis of the data is a
continuing process, the target industries may be adjusted by an amendment to this
RMO at some time during the next 12 months.

If the mandatory audits noted above does not provide sufficient workload for
the RDO to accomplish the audit work plan, the top 10 percent (Priority Target
Population — Top 10 percent or PTT) or bottom 10 percent (Priority Target
Population — Bottom 10 percent or PTB) in terms of gross sales or receipts of the
following industries have been identified for audit in priority order:

Industry NEDA Classification Code

Real Estate 8410 through 8499

Insurance 8310 through 8399
Retail Trade 6210 through 6290
Construction 5011 through 5030
Business Services 8511 through 8590

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 Thereafter, tax returns without substantial change in gross sales/receipts will be
selected. For this purpose, the phrase "without substantial change" will mean less than
20 percent increase or decrease in the current year's gross sales/receipts over that of
the preceding year (Priority Target Population - No Change or PTN).

C. Revenue District Officer Discretion (RDO)

Because Revenue District Officers are presumed to know the taxpayers who are not
complying with their tax obligation in their respective districts, they are given the
opportunity to select taxpayers which do not fall within the guidelines established
above but the total selected will not exceed 10 percent of the annual work plan
assigned to the RDO. In other words, 90 percent of the audit plan accomplishments
will originate from the criteria noted above and 10 percent of the audit plan
accomplishments will originate from RDO discretionary audits.

V. Deviation From Policy

Since this RMO cannot cover all possible situations of Revenue District
Offices throughout the country, deviations from these policies (including number of
cases in excess of the audit work plan) may be allowed but only upon prior written
authorization from the Assistant Commissioner Assessment Service as recommended
by the Revenue Regional Director.

Any unauthorized deviation from this policy and instruction will result in
disciplinary action and revocation of authority to issue LAs. In this regard, the
Revenue Regional Directors are authorized to relieve, re-assign, or transfer within the
region any Revenue District Officer violating the instructions in this RMO. The
Regional Directors may recommended to the Commissioner replacements for
Revenue District removed for noncompliance with this Order.

VI. Reporting Requirements

In order that uniform information will submitted by RDOs, monthly reports are
required using BIR Form 19.71 (Annex B), containing the total number of dockets
closed during the month segregated by tax year, type of tax and Audit Work Plan
Selection Codes. The Audit Work Plan Selection Codes established under RMO
26-94 shall continue to be used for 1995. Form 19.71 will be submitted directly to the
Assistant Commissioner (Assessment Service), Diliman, Quezon City, not later than
the 10th day of the following month. A copy of Form 19.71 will also be submitted to
the Revenue Regional Director. Page 3 of Form 19.71 will count all cases closed
during the month including closed cases reported under the columns 4a and 4b, Other

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Closed Dockets. A cumulative total of all cases closed during the year is shown on
Line 2 of Page 3. For the Audit Program for June 1995, the twelve-month reporting
period will begin on July 1, 1995 and end on June 30, 1996. Accomplishment of the
1995 Audit Plan (Annex A) will be based on the number of closed cases as reflected
on Form 19.71. The "Year To Date" line on Form 19.71 should start with July 1995
closures.

Forms 1964S, Inventory of Pending Cases/Dockets, will be submitted directly

to the Assistant Commissioner (Assessment Service), Diliman, Quezon City, not later
than the 10th day of the following month. A copy of Form 19.64 will also be
submitted to the Revenue Regional Director.

Forms 1717, Revenue Officer's Report, will now be submitted by regional

Assessment Divisions. The regional Assessment Division shall detach a copy of Form
1717 from the docket and transmit the same directly to the Assessment Service,
Attention: Audit Data Bank Division, within five(5) days after receipt of the docket
from the RDO. Forms 1717 will be prepared by the Revenue Officer conducting the
audit at the RDO and will be included with the docket for review by the Assessment
Division.

Instructions for the accomplishment of BIR Form 19.71 is attached herewith as

Annex C.

VII. Repealing Clause

Portions of RMO 26-94 dated April 11, 1994 (Audit Program for 1994), RMO
44-94 dated May 23, 1994 (Lifting the suspension of Letters of Authority and all on
going audit/investigation under RMO 31-93), RMO 25-94 dated March 7, 1994
(Prescribing the use of Form 1717 [Revenue Officer's Audit Report] and providing
the necessary guidelines and instructions for their use), and other orders and issuances
inconsistent with these instructions are hereby modified or repealed accordingly.

VIII. Effectivity

This Order shall take effect on July 1, 1995. A Certification of Satisfactory

Completion of Priority Work as per RMO 70-94 is still required before the RDO can
commence audit activity.

LIWAYWAY VINZONS-CHATO
Commissioner of Internal Revenue

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 ANNEX A
1995 Audit Plan by Revenue District Office
Updated: 5/19/95

Number
Revenue of 1995
— Revenue District Office — Region Revenue Workload Audit
Number Name Number Officers Factor Plan

RR # 1 — Baguio City
1 Laoag City 1 5 47 235
2 Vigan, Ilocos Sur 1 4 35 140
3 San Fernando, La Union 1 15 24 360
4 Calasiao, West Pangasinan 1 15 25 375
5 Alaminos, West Pangasinan 1 8 22 176
6 Urdaneta, East Pangasinan 1 10 34 340
Revenue Region Total 1,626

RR # 2 — Cordillera Administrative Region

7 Bangued, Abra 2 2 28 56
8 Baguio City 2 8 22 176
9 La Trinidad, Benguet 2 8 22 176
10 Bontoc, Mt. Province 2 1 22 22
11 Tabuk, Kalinga-Apayao 2 4 22 88
12 Lagawe, Ifugao 2 1 22 22
Revenue Region Total 540

RR # 3 — Tuguegarao, Cagayan
13 Tuguegarao, Cagayan 3 11 22 242
14 Bayombong, Nueva Vizcaya 3 5 22 110
15 Ilagan, Isabela 3 23 22 506
16 Cabarroguis, Quirino 3 2 22 44
Revenue Region Total 902

RR # 4 — San Fernando, Pampanga

17 Tarlac, Tarlac 4 19 22 418
18 Olongapo City 4 3 46 138
19 Iba, Zambales 4 5 22 110
20 Balanga, Bataan 4 9 32 288
21 San Fernando, Pampanga 4 34 22 748
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 22 Baler, Aurora 4 2 35 70
23 Cabanatuan City 4 20 4 880
Revenue Region Total 2,652

RR # 5 — Valenzuela
24 Valenzuela 5 49 44 156
25 Malolos, Bulacan 5 34 22 748
26 Malabon — Navotas 5 21 51 1071
27 Caloocan City 5 57 31 1767
28 Novaliches 5 33 22 726
Revenue Region Total 6,468

RR # 6 —
Manila
San Nicolas — Tondo
29 6 68 37 2516
30
Binondo 57 28 15 96
31
Sta. Cruz 6 55 22 1210
Quiapo — Sampaloc
32
— San Miguel 6 25 40 1000
33 Intramuros —Ermita
— Malate 6 44 22 968
34 Paco — Pandacan
— Santa Ana 6 32 22 704
35 Romblon 6 2 22 44
36 Puerto Princesa 6 2 22 44
37 San Jose, Occidental
Mindoro 6 1 22 22
Revenue Region Total 8,104

RR # 7 — Quezon City
38 North Quezon City 7 71 38 2,698
39 South Quezon City 7 72 22 1,584
40 Cubao 7 67 22 1,474
41 Mandaluyong 7 63 22 1,386
42 San Juan 7 43 22 946
43 Pasig 7 70 22 1,540
44 Taguig — Pateros 7 34 22 748
45 Marikina 7 42 22 924
46 Cainta — Taytay 7 27 22 594
Revenue Region Total 11,894

RR # 8 — Makati
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 47 East Makati 8 40 33 1,320
48 West Makati 8 36 22 792
49 North Makati 8 32 22 704
50 South Makati 8 45 22 990
51 Pasay City 8 6 22 792
52 Parañaque 8 28 22 616
53 Las Piñas — Muntinglupa 8 24 22 528
54 Trece Martinez City 8 14 24 336
Revenue Region Total 6,078

RR # 9 — San Pablo City

55 San Pablo City 9 20 23 460
56 Calamba, Laguna 9 14 22 308
57 San Pedro, Laguna 9 15 22 330
58 Batangas City 9 15 22 330
59 Lipa City 9 7 53 371
60 Lucena City 9 15 22 330
61 Gumaca, Quezon 9 5 27 135
62 Boac, Marinduque 9 3 22 66
63 Calapan, Oriental Mindoro 9 3 22 66
Revenue Region Total 2,396

RR # 10 — Legaspi City
64 Daet, Camarines Norte 10 4 71 284
65 Naga City 10 11 46 506
66 Iriga City 10 4 46 184
67 Legazpi City 10 8 78 624
68 Sorsogon, Sorsogon 10 3 56 168
69 Virac, Catanduanes 10 1 55 55
70 Masbate, Masbate 10 3 45 135
Revenue Region total 1,956

RR # 11 — Iloilo City
71 Kalibo, Aklan 11 5 22 110
72 Roxas City 11 4 44 176
73 San Jose, Antique 11 3 26 78
74 Iloilo City 11 21 49 1,029
75 Barotac Nuevo, Iloilo 11 5 42 210
Revenue Region total 1,603

RR # 12 — Bacolod City
76 Victorias, Negros Occ. 12 8 31 248
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 77 Bacolod City 12 23 81 1,863
78 Binalbagan, Negros Occ. 12 7 22 154
79 Dumaguete City 12 6 24 144
Revenue Region total 2,409

RR # 13 — Cebu City
80 Mandaue City 13 18 22 396
81 Cebu City 13 34 22 748
82 Cebu City South 13 17 22 374
83 Talisay Cebu 13 9 22 198
84 Tagbilaran City 13 7 22 154
Revenue Region total 1,870

RR # 14 — Tacloban City
85 Catarman, Northern Samar 14 1 22 22
86 Borongan, Eastern Samar 14 1 22 22
87 Catbalogan, Western Samar 14 5 22 110
88 Tacloban City 14 12 22 264
89 Ormoc City 14 7 22 154
90 Maasin, Southern Leyte 14 3 22 66
Revenue Region total 638

RR # 15 — Zamboanga City
91 Dipolog City 15 5 29 145
92 Pagadian City 15 7 62 434
93 Zamboanga City 15 14 52 728
94 Isabela, Basilan 15 2 43 86
95 Jolo, Sulu 15 2 57 114
96 Bongao, Tawi-Tawi 15 2 42 84
Revenue Region Total 1,591

RR # 16 — Cagayan de Oro City

97 Gingoog City 16 4 22 88
98 Cagayan de Oro City 16 22 28 616
99 Malaybalay, Bukidnon 16 6 22 132
100 Ozamis City 16 7 22 154
101 Iligan City 16 11 30 330
102 Marawi City 16 2 22 44
Revenue Region Total 1,364

RR # 17 — Butuan City
103 Butuan City 17 9 51 459
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 104 Bayugan, Agusan del Sur 17 4 22 88
105 Surigao City 17 6 26 156
106 Tandag, Surigao del Sur 17 8 26 208
Revenue Region Total 911

RR # 18 — Cotabato City
107 Cotabato City 18 14 23 322
108 Kidapawan, North Cotabato 18 9 50 450
109 Tacurong, Sultan Kudarat 18 7 32 224
110 General Santos City 18 14 22 308
111 Koronadal, South Cotabato 18 8 22 176
Revenue Region Total 1,480

RR # 19 — Davao City
112 Tagum, Davao del Norte 19 12 22 564
113 Davao City 19 33 34 1,551
114 Mati, Davao Oriental 19 4 44 188
115 Digos, Davao del Sur 19 6 58 282
Revenue Region Total 2,585

Total Audit Plan for 1995 1,983 57,067

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