REVENUE MEMORANDUM ORDER NO. 11-2006 issued on April 27, 2006 prescribes the
2006 Audit Program for Revenue District Offices (RDOs).
The Audit Program covers investigation of 2005 internal revenue tax returns and income
tax returns of fiscal period taxpayers whose taxable year ended on June 30, 2006. Except for
cases involving claims for tax credit/refund, estate tax return and requests for tax clearance of
taxpayers due to retirement of business, which have to be acted upon immediately, tax returns for
2004 other than those mentioned in the preceding statement, as well as prior to 2004 tax returns
may be audited/investigated subject to prior approval of the Commissioner.
Letters of Authority (LAs)/Audit Notices (ANs) shall be issued only in the following
cases:
a. Mandatory
a.1 Claims for income tax refund or issuance of tax credit certificate exceeding P=
100,000.00, which will require the audit/investigation of all internal revenue tax
liabilities for the covered period (Selection Code: ITR/ITC)
a.2 Claims for Value-Added Tax (VAT) refund or issuance of tax credit certificate
exceeding P= 100,000.00, which will require the specific audit/investigation of the
VAT liabilities only for the covered period (Selection Code: VTR/VTC)
a.3 Estate tax returns with other tax liabilities (Selection Code: EOT)
a.4 Estate tax returns with no other tax liabilities where the gross estate exceeds P=
10,000,000.00 for Revenue Region Nos. 5, 6, 7, 8 (Valenzuela, Manila, Quezon
City and Makati), except taxpayers in RDO Nos. 35-Romblon, 36-Puerto
Princesa and 37-San Jose, Occidental Mindoro and gross estate exceeding P=
5,000,000.00 for all other Regions, including the aforementioned RDOs
(Selection Code: EST)
a.5 Request for tax clearance of taxpayers due to retirement/cessation of business
with gross assets P= 10,000,000.00 which will require the audit/verification of all
internal revenue tax liabilities for the immediately preceding year and the year of
retirement of the taxpayer (Selection Code: RET)
a.6 Request for tax clearance of taxpayers undergoing merger/consolidation/splitup/spin-off and other types of corporate reorganizations with gross assets
exceeding P= 10,000,000.00 which will require the audit/verification of all
internal revenue tax liabilities for the immediately preceding year and the year of
corporate reorganization of the taxpayer, specifically, those whose juridical
personality will cease (Selection Code: MCS)
a.7 Taxpayers/direct exporters who filed claims for VAT credit with the Tax and
Revenue Group, One-Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center (OSS), Department of Finance (DOF), which will require the audit of all
internal revenue tax liabilities other than VAT which is being handled by the
OSS Center and the DOF (Selection Code: OSS)
b. Top priority taxpayers
b.1 Taxpayers who are reporting/filing “No Operations” Annual Income Tax Returns
(Selection Code: NOP)
b.2 Taxpayers with obvious basic tax deficiency amounting to P= 100,000.00 or more
based on Third Party Information (Selection Code: TPI)
b.3 Property buyers with no Income Tax Return (ITR) filed or with ITR whose
reported income does not warrant acquisition of such property, where the value
of the property acquired is at least P= 5,000,000.00 (Selection Code: PRO)
b.4 Local Water Districts (Selection Code: LWD)
b.5 Taxpayers with Letter Notices per recommendation of authorized revenue official
(Selection Code: LNS)
b.6 Taxpayers whose tax compliance falls below the established benchmarks per
identified industries (Selection Code: BEN)
c. Other priority taxpayers where the annual gross sales/income exceeds P=
4,000,000.00 for Revenue Region Nos. 5, 6, 7, 8 (Valenzuela, Manila, Quezon City
and Makati), except taxpayers in RDO Nos. 35-Romblon, 36-Puerto Princesa and 37-
San Jose, Occidental Mindoro and exceeds P= 2,000,000.00 for all other
Regions, including the aforementioned RDOs, under any of the following instances:
c.1 Taxpayers who availed of Net Operating Loss Carry Over (NOLCO) (Selection
Code: NOL)
c.2 Taxpayers who filed break-even returns or returns showing net loss for at least
two (2) consecutive years (Selection Code: BER)
c.3 Taxpayers whose tax due/VAT payable or VAT paid for taxable year 2004 is less
than that of the immediately preceding year (Selection Code: TDL)
c.4 Taxpayers with increase in assets but with reported net loss (Selection Code: INC)
c.5 Taxpayers maintaining an ending inventory of 100% or more of its gross sales
during the taxable year (Selection Code: INV)
c.6 Other cases with substantial tax potential subject to the approval of the
Commissioner (Selection Code: OTH)
d. On Short/Specific Audit And Issue-Oriented Audit
d.1 Taxpayers with zero-rated sales and exempt sales which will require the specific
audit of VAT liabilities, including input tax allocation, for the 2nd semester of
taxable year (Selection Code: VTS)
d.2 Withholding tax liabilities for 2005 including withholding tax on fringe benefits
(Selection Code: WTH)
Tax Verification Notices (TVNs) shall be issued only in the following instances:
a. Claims for income tax refund or issuance of tax credit amounting to P
100,000.00 and below, which will require the verification of all internal revenue tax
liabilities for the covered period
b. Claims for VAT refund or issuance of tax credit certificate amounting to P100,000.00
and below, which will require the specific verification of the VAT liabilities only for
the covered period
c. Estate tax returns with no other tax liabilities where the gross estate is P=
10,000,000.00 and below for Revenue Region Nos. 5, 6, 7, 8 (Valenzuela, Manila,
Quezon City and Makati), except taxpayers in RDO Nos. 35-Romblon, 36-Puerto
Princesa and 37-San Jose, Occidental Mindoro and gross estate of P= 5,000,000.00 and
below for all other Regions, including the aforementioned RDOs
d. Claims for tax credit/refund of excise tax under Title VI of the NIRC of 1997,
regardless of amount
e. Claims for tax credit/refund on erroneous/double payment of taxes, regardless of
amount
f. Taxpayers who are retiring from business with gross assets of P= 10,
000,000.00 and below
g. Protested cases/cases for reinvestigation
All LAs/ANs shall be prepared, approved and signed by the Regional Director unless
otherwise directed by the Commissioner. The Regional Director shall not issue LAs/ANs on tax
returns that do not match the selection criteria outlined in this Order unless prior written approval
is secured from the Commissioner. For this purpose, a written justification for the request to
audit a particular taxpayer or group of taxpayer shall be submitted by the Regional Director to
the Commissioner, through the DCIR-OG, for approval.The Regional Director shall issue the LA
only when the duplicate copy of the tax returns of the taxable year to be covered by the LA is
attached thereto.
Taxpayers who have been examined for the prior year shall not be investigated for the
immediately succeeding period by the same Revenue Officer (RO) and/or Group Supervisor
except cases mentioned in paragraph IV.9 of the Order or when there is only one Group
Supervisor or at most 4 Revenue Officers in one district.
The concerned RDO shall refer the following cases to the Special Investigation Division:
a. Taxpayers with substantial reduction in gross sales/receipts/tax payments and/or
substantial increase in costs of sales and expenses.
b. Taxpayers found understating the correct sales/income by more than 30% as a result
of authorized surveillance/stocktaking/tax mapping activities and third party
information
c. Taxpayers who are identified through the Tax Compliance Verification Drive
(TCVD) as consistent violators of non-issuance of receipts/invoices, etc. as
recommended by TCVD Coordinators
The policy on the simultaneous investigation of all liabilities of the taxpayer shall be
followed. One LA/TVN shall be issued for each taxable year or period to include all internal
revenue tax liabilities of the taxpayer.
The practice of issuing mission orders, correspondence letters, referral memoranda or any
other similar orders for the purpose of audit examination and assessment of internal revenue
taxes is hereby strictly prohibited. However, this excludes orders for purposes of surveillance,
stocktaking, TCVD or any similar purpose, which will however, require prior clearance from the
Commissioner, through the Regional Director. Only Revenue Officers–Assessment Group shall
be authorized to conduct audit and investigation of tax cases, whether in a principal or assisting
capacity.
Cases to be covered by LAs/ANs shall be classified according to either gross assets or
gross sales/receipts as of the end of the applicable taxable period based on the following:
Case
Classification Gross Sales/Receipts or Gross Assets
Small Not more than P 5,000,000.00 Not more than – P 10,000,000.00
Medium P5,000,000.01 -P 50,000,000.00 P 10,000,000.01 – P100,000,000.00
Large P50,000,000.01– P100,000,000.00 P100,000,000.01 – P 400,000,000.00
Very Large Over – P100,000,000.00 Over – P400,000,000.00
Reports of investigation of all cases covered by LAs/ANs/TVNs shall be submitted by
the RO within the following prescribed number of calendar days from the date of
LAs/ANs/TVNs:
Case Classification No. of Days
Cases other than VAT claims for
refund/credit :
Case Classification No. of Days
Very Large 120
Large 90
Medium 60
Small/TVN 30
Cases covering claims for VAT
refund/credit
120 days from the
submission of complete
documents
For offices where the LA Monitoring System (LAMS) is already rolled out, the
concerned offices shall encode the LAs issued and update the status of the said LAs in the
LAMS.