September 2, 2004

REVENUE MEMORANDUM ORDER NO. 46-04

SUBJECT : Additional Supplement and Guidelines in Handling Letter Notices with

Discrepancies Arising from Data Matching Processes as defined in
Revenue Memorandum Order (RMO) Nos. 34-2004 and 30-2003, as
amended by RMO Nos. 42-2003 and 24-2004, which remain Unserved,
have been Served but are Without Response, or are Under Protest by
Taxpayers

TO : All Internal Revenue Officers and Others Concerned

I. OBJECTIVES
This Order is issued to:
1. Effectively utilize the information provided by the Third Party Information
(TPI) Matching Program, by providing the policies and guidelines for
the disposition of Letters Notices (LNs) that remain unserved, and for
the treatment of taxpayers who:
a. Refuse to respond to LNs issued to them; or
b. Unreasonably or without valid reason, protest the discrepancies
stated in the LNs issued to them and have continually refused
to pay the deficiency taxes due as a result of the discrepancies.
2. Expedite the resolution of disputed assessments against taxpayers
issued LNs under protest.
3. Reduce the inventory of LNs "Under Protest" and those "Without
Responses."
4. De ne the duties and functions of revenue o cers concerned, in order to
emphasize their responsibilities and accountability over LNs assigned
to them.
II. POLICIES AND GUIDELINES
1. Conformably with the regulations that returns for which Letters of
Authority are issued can no longer be amended, returns covering the
periods or including transactions referred to in the LNs can no longer
be amended.
The returns referred to herein shall include income tax returns, VAT returns,
and all other returns and schedules required to be submitted.
Moreover, if there are no returns initially led, the taxpayer may no
longer file a return by way of a "late compliance" action.
2. The "no-contact-audit approach" provided in RMO No. 42-2003 shall refer
to the manner in which the discrepancy in the LN was arrived at. Said
discrepancy shall represent the results of the computerized matching
of data/information from third party sources/providers vis-à-vis
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 return information led by the taxpayers, and not the results of an
audit or investigation.
3. Those LNs for which no response have been received notwithstanding
proper service and follow-up shall no longer be forwarded to the
Special Concerns Group (SCG) [in case of SLS/SLP LNs] or the
Technical Working Group (TWG) [in case of BOC LNs].
In the case of those "no-response" LNs that involve discrepancies of less
than thirty percent (30%), the Revenue O cer (RO) concerned shall
endorse the case to the Assessment Division of the Region, or its
equivalent o ce in the Large Taxpayers Service, for the issuance of a
Preliminary Assessment Notice (PAN) or Final Assessment Notice
(FAN), as the case may be, in accordance with the provisions of
Revenue Regulations (RR) No. 12-99.
However, if the discrepancy stated in the LN is thirty percent (30%) and
above, the RO shall institute closure proceedings in accordance with
the policies and procedures prescribed under RMO No. 31-2002.
4. In the event a taxpayer who has been issued an LN protests the accuracy
of the data provided by third party sources (as opposed to erroneous
encoding of return information in the ITS), the RO concerned shall,
upon receipt of the Protest Letter of the taxpayer, evaluate the protest
and require the latter to execute a Sworn Statement attesting to the
alleged inaccuracies or errors in the TPI. The TPI provider (except
BOC) shall also be required to execute a Sworn Statement attesting to
the data provided.
Enforcement action shall be undertaken in instances when, on the basis of
the documents submitted by both the TPI providers and the taxpayer
concerned, as well as other information available to him/her, the
Regional Director/Head of the Large Taxpayers Service has reason to
believe that there is an evasion of taxes that warrants said action. The
Regional Director/Head of the Large Taxpayers Service shall decide
on the most appropriate enforcement action (such as
audit/investigation, surveillance, stock-taking) that will expedite the
recovery of the unpaid taxes.
The above enforcement action shall be in addition to the ling of criminal
charges as may be warranted by the Commissioner or the O ce of
the Deputy Commissioner for Criminal Prosecution. For this purpose,
the documents obtained by the RO from the taxpayer and the TPI
source(s), as well as the evaluation of the Regional Director/Head of
the Large Taxpayers Service, must be forwarded to the Deputy
Commissioner within one (1) month from completion of the
evaluation. EAISDH

5. If the enforcement action decided in the preceding paragraph is the

conduct of an audit/investigation, the audit to be conducted should —
whenever possible — be an issue-based audit focusing on the
information provided by the TPI source(s) and the explanation
furnished by the taxpayer.
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 A comprehensive audit shall be undertaken only when an issue-based audit
is not feasible, in which case, the RO shall observe the audit
procedures and techniques under Revenue Audit Memorandum Order
(RAMO) Nos. 1-2000, 2-95, 1-91 and 1-90. The RO shall also comply
with the reporting requirements prescribed under RMO No. 53-98.
6. Inasmuch as the discrepancy has already been determined, the RO shall
have a minimum of thirty (30) days and a maximum of sixty (60) days
from submission of the Sworn Statement by the TPI source, to
terminate the audit/investigation.
7. The Revenue District O ce (RDO)/Large Taxpayers District O ce
(LTDO)/Large Taxpayers Audit and Investigation Division (LTAID) I
and II shall submit a List of LNs "Under Protest" Selected for Audit in a
format prescribed herein, to be attached to the Monthly/Quarterly
Status Report on LNs Issued, to be submitted to the Audit
Information, Tax Exemption and Incentives Division (AITEID), copy
furnished the O ce of the Deputy Commissioner, Special Concerns
Group, for monitoring purposes.
III. PROCEDURES
Action on LNs that remain Unserved
1. If, after having exhausted all means to locate a taxpayer (as observed in
the service of LAs), or, as in the case of corporate taxpayers, the
corporate o cers of the concerned establishment, the Revenue
O cer assigned to a particular LN is unable to ascertain their
whereabouts, he shall submit to the Revenue District O cer/Chief of
the LT Division/District Office the appropriate report attesting that the
taxpayer/corporate officers cannot be located.
2. The Revenue District O cer/Chief of the LT Division/District O ce shall
then forward the report to the AITEID, which shall coordinate with the
National Investigation Division in seeking the assistance of the
National Security Council (NSC) in locating the said
taxpayer/corporate officers.
3. If the NSC is unable to locate the subject taxpayer/corporate o cers, and
has informed the Bureau in writing of such development, the same
shall be considered as su cient basis for the cancellation of the
concerned LN. The AITEID shall then inform the concerned District of
the cancellation of the LN, and remove the same from the inventory of
LNs referred to the District for service.
However, if the NSC has located the concerned taxpayer/corporate o cers,
and has duly informed the Bureau of the whereabouts of the
taxpayer/corporate o cers, the information shall be forwarded to the
AITEID, which shall advise the District O ce/LT Division/District
Office of the new address of the taxpayer/corporate officers.
If the taxpayer/corporate o cers is/are located in a different District,
AITEID shall make the necessary corrections in the concerned LN, and
refer the amended LN to the appropriate District O ce/LT
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 Division/District Office.
Action on Protested LNs due to TPI discrepancy
The Revenue Officer assigned to handle the Letter Notice shall:
1. Evaluate the merits of the taxpayer's Protest by:
1.1 Requiring the taxpayer to submit the necessary schedules and
supporting documents to substantiate his claims.
1.2 Reconciling the Schedule of Sales/Local Purchases submitted by
the taxpayer against the Details of Taxpayer's
Customers/Suppliers' Records (DTCS) culled from the
Quarterly Summary List of Sales/Purchases submitted by
taxpayer's suppliers and customers, respectively.
1.3 Reconciling the Schedule of Importation submitted by the
taxpayer against the Details of Importation with Return
Information Matching (DIRIM) culled from data provided by the
Bureau of Customs (BOC).
1.4 Checking for the propriety of the transactions reflected in the
schedules submitted by the taxpayer by validating against
source documents (e.g. sales invoices, official receipts, import
entry declarations, etc.).
2. Require the taxpayer to execute a Sworn Statement (Annex A) attesting to
the veracity of the schedules and authenticity of the documents
presented/submitted.
3. Obtain Sworn Statements from TPI sources (Annexes "B" and "C")
attesting to the veracity of the data provided.
3.1 If the TPI source is registered in the RDO/LTDO/LTAID having
jurisdiction over the subject taxpayer, the RO shall:
3.1.1 Prepare "Confirmation Requests" (using the format prescribed
in Annex "C" of RMO No. 30-2003 to be signed by the heads of
the concerned RDO/LTDO/LTAID) for purposes of verifying
the accuracy of the figures appearing in the DTCS
3.1.2 If the TPI source agrees with the figures in the "Confirmation
Requests" (CR), secure a Sworn Statement from the TPI
source to allow the RO to build a case against the taxpayer.
3.2 If the TPI source is outside the jurisdiction of the
RDO/LTDO/LTAID where the taxpayer is registered, the RO
shall:
3.2.1 Coordinate with the RDO/LTDO/LTAID where the TPI source is
registered, in order to:
a. Prepare a CR to be transmitted and signed by the
RDO/LTDO/LTAID having jurisdiction over TPI source
(CRs should be coursed thru the RDO/LTDO/LTAID
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 where the taxpayer is registered);
b. Secure a sworn statement from the TPI source thru the
RDO/LTDO/LTAID having jurisdiction over the same;
and,
c. Assist the heads of the concerned RDO/LTDO/LTAID in the
preparation of Monthly Status Report on Con rmation
Requests Transmitted (Annex "D") outside the
RDO/LTDO/LTAID of the TPI source and submit the
same to the SCG, for monitoring purposes.
4. Provide the taxpayer a brief "grace period" (no more than ten [10] days) to
reconcile the gures in his Sworn Statement against those of the TPI
source.
5. If the taxpayer interposes no further objection to the TPI source's Sworn
Statement, compute the de ciency tax(es) using the formula
prescribed in BIR Forms 2112-A, 2112-B or 2112-C, whichever is
applicable.
6. If the taxpayer objects/protests the Sworn Statement of the TPI source —
6.1 The Revenue District Officer/Chief of the LT Division/District
Office concerned shall recommend to the Regional
Director/Head of the Large Taxpayers Service, the most
appropriate enforcement action (such as audit/investigation,
surveillance, stock-taking) to expedite the recovery of the
unpaid taxes.
6.2 In the event that the Regional Director/Head of the Large
Taxpayers Service shall approve the conduct of an
audit/investigation, the RO concerned shall implement the audit
procedures and techniques laid down in RAMO Nos. 1-2000, 2-
95, 1-91 and 1-90. CSTcEI

Should the conduct of surveillance and/or stock-taking activities be

approved, the same shall be conducted in accordance with
established Bureau rules and regulations on these enforcement
actions.
6.3 In the conduct of audits/investigations, a case must be
terminated by the RO within thirty (30) days to sixty (60) days
from the receipt of the TPI source's Sworn Statement.
In the event that the report cannot be rendered within the prescribed
period due to constraints attributable to the taxpayer, indicate
the reason(s) in the List of LNs "Under Protest" Selected for
Audit (Annex "E") to be attached to the Monthly/Quarterly
Report on LNs Issued, to be submitted to the AITEID, copy
furnished ODCIR, SCG, for monitoring purposes.
6.4 In preparing the tax docket, the RO shall observe the mandatory
reporting requirements set forth in RMO No. 53-98
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 6.5 The entire docket of the case must be transmitted to the
Assessment Division of the Region, or the equivalent office in
the LTS, for review and issuance of Preliminary Assessment
Notice (PAN) or Final Assessment Notice (FAN), as the case
may be.
7. The dockets and other pertinent records of closed LNs shall be
forwarded to the Records Division (for LNs generated at the National
O ce) or to the Regional Administrative Divisions (for LNs generated
by the Regional O ces), for archival, in observance of the rules and
regulations on the archival of o cial Bureau records that are set forth
in Revenue Memorandum Order No. 51-75.
IV. REPEALING CLAUSE
The rules and policies laid down under RMO Nos. 34-2004 and 30-2003, as
amended by RMO Nos. 42-2003 and 24-2004, that are not otherwise inconsistent with
this Order shall remain in force. AcICHD

V. EFFECTIVITY
This Order shall take effect immediately.

(SGD.) GUILLERMO L. PARAYNO, JR.

Commissioner of Internal Revenue
ANNEX A
For Taxpayer
SWORN STATEMENT
I, _____________(name)______________, ____(owner/position)_____ of _______(Registered
Name of Taxpayer Issued LN)__ with business address at
____________________________________________ and TIN ____________ after having been duly
sworn to in accordance with law, hereby depose and state that:
1. The gures/discrepancy re ected in Letter Notice (LN) No. __________________ dated
________________ issued in favor of _________________________________ is not an
accurate statement of our sales/purchases and VAT liabilities for taxable year
_______.
2. The gures shown hereunder represent our actual sales/purchases to/from the
following customers/suppliers as recorded in the books of accounts and as
declared in the returns filed for taxable year ________.
[image]

3. We have declared the output/input taxes (VAT) on the aforesaid sales/purchases

amounting to P________________ and that the original VAT invoices/receipts are
part of our accounting records.
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 4. We hereby attest to the veracity of the Schedules of Sales/Purchases (Annexes
"________") and authenticity of the supporting documents, e.g. invoices, receipts,
etc. presented to the Bureau of Internal Revenue (BIR) for purposes of
substantiating the sales/purchases gures re ected in the above Schedules
and declared as such in the returns required to be led by the BIR for taxable
year _____.
_________________________________
Registered Name of Taxpayer Issued LN

_________________________________
(Signature Over Printed Name)
President/Chief Finance Officer/Equivalent
SUBSCRIBED AND SWORN to before me, this _____ day of ______________, 200__, at
______________, affiant exhibiting to me his/her Community Tax Certificate, as follows:
[image]

NOTARY PUBLIC

Doc. No. ________

Page No. ________
Book No. _______
Series of 200_____
ANNEX B

For Taxpayer's Supplier

SWORN STATEMENT
I, ____________(name)_____________, ____(owner/position)____ of _______(Registered
Name of Taxpayer's Supplier)_______ with business address at
___________________________________ and TIN ____________ after having been duly sworn to in
accordance with law, hereby depose and state that:
1. _________(Taxpayers' Supplier)____________ sold goods/services to _____(Registered
Name of Taxpayer Issued LN)______ with business address at
______________________________________ and TIN ____________ for taxable year
_______ as follows:
Qtr Non-Vatable Sales Vatable Sales Output VAT
(Goods/Services) (net of VAT)

1st

2nd

3rd

4th

TOTAL

2. __________(Taxpayer's Supplier)_________ has declared the output taxes (VAT) on the

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 aforesaid sales and the original VAT invoices/receipts are part of our
accounting records.
3. The aforesaid sales were included in the Quarterly Summary List of Sales and
Purchases (SLSP) submitted by _______(Taxpayer's Supplier)_____________ to the
Bureau of Internal Revenue pursuant to Revenue Regulations (RR) No. 7-95, as
amended by RR Nos. 13-97, 7-99 and 8-2002.
__________________________________
Registered Name of Taxpayer's Supplier

_________________________________
(Signature Over Printed Name)
President/Chief Finance Officer/Equivalent
SUBSCRIBED AND SWORN to before me, this _____ day of ______________, 200__, at
______________, affiant exhibiting to me his/her Community Tax Certificate, as follows:
[image]

NOTARY PUBLIC
Doc. No. ________
Page No. ________
Book No. _______
Series of 200_____

ANNEX C
For Taxpayer's Customer
SWORN STATEMENT
I, ____________(name)_____________, ____(owner/position)____ of _______(Registered
Name of Taxpayer's Customer)_______ with business address at
___________________________________ and TIN ____________ after having been duly sworn to in
accordance with law, hereby depose and state that:
1. _________(Taxpayers' Customer)____________ purchased goods/services to
______(Registered Name of Taxpayer Issued LN)_____ with business address at
______________________________________ and TIN ____________ for taxable year
_______ as follows:
Qtr Non-Vatable Vatable Input VAT
Purchases Purchases Claimed
(Goods/Services) (net of VAT)

1st

2nd

3rd

4th

TOTAL
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 2. __________(Taxpayer's Customer)_________ has claimed the input taxes (VAT) on the
aforesaid purchases and the same are duly supported by VAT invoices/receipts
issued by _______________________________.
3. The aforesaid sales were included in the Quarterly Summary List of Sales and
Purchases (SLSP) submitted by _______(Taxpayer's Customer)___________ to the
Bureau of Internal Revenue pursuant to Revenue Regulations (RR) No. 7-95, as
amended by RR Nos. 13-97, 7-99 and 8-2002.
__________________________________
Registered Name of Taxpayer's Customer
_________________________________
(Signature Over Printed Name)
President/Chief Finance Officer/Equivalent
SUBSCRIBED AND SWORN to before me, this _____ day of ______________, 200__, at
______________, affiant exhibiting to me his/her Community Tax Certificate, as follows:

NOTARY PUBLIC

Doc. No. ________

Page No. ________
Book No. _______
Series of 200_____

ANNEX D

RDO/LTDO/LTAID/NID
Monthly Status Report on Confirmation Requests Transmitted to Another Investigating
Unit

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