AUDIT OF PROFESSIONAL FEES
- Determine the taxpayer’s accounting method of recognizing income, whether cash or accrual.
- Examine contracts with clients and other correspondence/documents in relation to professional services rendered.
- Compare income reported on the tax return with the books of accounts, creditable withholding tax forms, financial statements and official receipts issued.
- Account for official receipts issued. Note any missing receipt or break in the series and investigate the reasons therefor.
- Analyze the reasonableness of expenses claimed in relation to income declared.
- Conduct interviews and third-party verification, if necessary.
- Relate the income reported per tax return to the lifestyle and assets of the taxpayer. If the taxpayer’s assets and estimated costs of living expenses are beyond the income earned, verify and compute for possible under declaration of income by using the net worth method of investigation.
Reference: RAMO 1-2000