A. Arranging for an Appointment
A telephone or a personal call by the Revenue Officer should be made to the taxpayer himself and not his representative.
B. Serving of Letter of Authority
- On the first opportunity of the Revenue Officer to have personal contact with the taxpayer, he should present the Letter of Authority (LA) together with a copy of the Taxpayer’s Bill of Rights.
- The LA should be served by the Revenue Officer assigned to the case and no one else. He should have the proper identification card and should be in proper attire.
- A Letter of Authority authorizes or empowers a designated Revenue Officer to examine, verify and scrutinize a taxpayer’s books and records in relation to his internal revenue tax liabilities for a particular period.
- A Letter of Authority must be served or presented to the taxpayer within 30 days from its date of issue; otherwise, it becomes null and void unless revalidated.
- The taxpayer has all the right to refuse its service if presented beyond the 30-day period depending on the policy set by top management. Revalidation is done by issuing a new Letter of Authority or by just simply stamping the words “Revalidated on” on the face of the copy of the Letter of Authority issued.
C. Request for Accounting Records
The Revenue Officer should clearly specify the records he desires to be assembled for his examination. Among the books and records that may be required are:
- receipts (official receipts, warehouse receipts, delivery receipts, etc.)
- invoices (sales and purchases invoices)
- cancelled checks
- bills and statements of accounts (utility bills, payment notices, etc.)
- contracts (sales/purchase contracts, loan contracts)
- journals (regular and subsidiary journals)
- ledgers (regular and subsidiary ledgers)
D. Initial Interview
The initial interview is the most important part of the examination process and should be conducted in all audits. Request should be made for a personal interview with the taxpayer himself.
The interrogation should be so conducted as to encourage the taxpayer to contribute willingly useful information which will assist in the proper determination of his tax liability. The information developed by this method will determine the eventual outcome of the case.
The preliminary interview should, as far as practicable, cover the following:
- Discussion of sources of income — This may uncover possible sources of income which have not been reported such as interests on investments and deposits, dividends, rents, sales of properties as well as information on the taxpayer’s financial history and standard of living;
- Records kept for each source of income;
- Handling and recording of cash transactions;
- Records of loans from banks and/or loans to others;
- Real or personal properties bought or sold in current year;
- Correctness of personal and additional exemptions claimed;
- Other items that would be relevant in the examination, to wit;
- The responsible officers of the firm in order to facilitate acquisition of information/data;
- Place and time of audit;
- Ocular inspection of the factory, branches, outlets, etc.;
- Officers to whom the tax audit findings will be discussed; and
- Financial history and standard of living of the owner/owners.