April 7, 1997

REVENUE MEMORANDUM ORDER NO. 23-97

SUBJECT : Further Amendment to RMO No. 15-95 as Amended by RMO

31-95 and RMO 1-96 to Clarify Certain Provisions and to Add
Necessary Steps in the Procedural Process of the Tax Fraud
Investigation

TO : All Internal Revenue Officers, Employees and Others

Concerned

In order to clarify the confusion as to the quantum of evidence in the

preliminary and formal investigations of the tax fraud cases and to guide all
investigators and intelligence officers of the Tax Fraud Division, National Office and
Special Investigation Division of the Regional Offices, as to the extent of their
authority to conduct tax fraud investigation, the following provisions of RMO No.
15-95 are hereby further amended to read as follows: cdrep

A.

xxx xxx xxx

B. JURISDICTION

1. TAX FRAUD DIVISION

1.1 ...

1.2 Selected machine generated cases with indications of fraud.

(Result of the interface of Audit [AUD] and Tax
Reconciliation [TRS] Systems).

2. SPECIAL INVESTIGATION DIVISION

2.1 The SID shall have jurisdiction over the following cases:

21.1 ...

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 2.1.2 Tax fraud cases initiated and developed by the SID,
including policy cases which the Regional Director
may generate from the records available at his level;

2.1.3 Tax fraud cases referred to it by the RDO within the

Region, and Third Party Information Unit,
Assessment Service of the National Office;

2.1.4 Selected machine generated cases with indications of

fraud. (Result of the interface of Audit [AUD] and
Tax Reconciliation [TRS] Systems).

C. PROCEDURE

A Preliminary Investigation must first be conducted to establish the

indication of fraud. This shall include the verification of the allegations in the
confidential information and/or complaints filed, and the determination of the
schemes and the probable extent of fraud perpetrated by the subject taxpayers,
through access to records and surveillance, without contact, personal or
otherwise, with the taxpayer.

The Formal Tax Fraud Investigation which includes the examination of

the books of accounts through the issuance of the Letter of Authority, shall be
conducted only after the existence of indications of fraud have been confirmed
by the Regional Tax Fraud Committee (RTFC).

In the prosecution of criminal cases for violation of internal revenue

laws, service of Assessment Notice to the taxpayer is not a requirement
following the Supreme Court's ruling in the case of Ungab vs. Cusi, 97 SCRA
877.

1. TAX FRAUD DIVISION

xxx xxx xxx

1.4 In reports of cases not recommended for criminal

prosecution, the following shall be observed:

1.4.1 In cases where the evidence of fraud does not

warrant criminal prosecution of the case,
investigation shall be pursued and the report thereof
shall be submitted to the Commissioner or Assistant
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 Commissioner, Intelligence and Investigation
Service for approval;

1.4.2 The final report of investigation having been

approved by the Commissioner or the Assistant
Commissioner, Intelligence and Investigation
Service, as the case may be, the Assessment Notice
and the Letter of Demand shall be immediately
served to the taxpayer concerned;

1.4.3 In cases where the tax liabilities have been fully paid,
the docket of the case shall be forwarded to the
Records Division of the National Office for
safekeeping. Where the taxpayer fails/refuses to-pay
the assessment within the prescribed period, the
docket shall be forwarded to the Collection Division
of the Revenue Region concerned for the application
of the civil remedies under the NIRC for the
collection of taxes.

xxx xxx xxx

2. SPECIAL INVESTIGATION DIVISION

2.1 The Chief of the SID shall issue the corresponding Letter of
Authority if indications of fraud have been established, and
the same has been confirmed by the Regional Tax Fraud
Committee (RTFC), composed of the following: cda

a. Regional Director — Chairman

b. Chief, SID — Member
c. RDO having jurisdiction over the taxpayer —
Member
d. Chief, Assessment Division — Member
e. Chief, Legal Division — Member
Thereafter, a photocopy of the Letter of Authority (L/A)
issued shall be immediately furnished the RDO. The RDO
in turn, shall desist from issuing any Letter of Authority to
the taxpayer concerned and shall transmit to the SID all the
documents in its possession relative thereto within five (5)
days from receipt of the L/A furnished him by the SID.

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 2.2 Where indications of fraud have been established by the
SID against a taxpayer who is or has been the subject of an
on-going or terminated investigation by the RDO, the SID
shall forward the records of the case for evaluation to the
RTFC.

If after evaluation the RTFC confirm to the SID the

indications of fraud, the following procedures shall be
followed:

2.2.1 Where the investigation is on-going, the RDO

concerned shall withdraw its L/A and immediately
cease and desist from further investigation. The
records of the case shall be forwarded to the SID
concerned within five (5) days from receipt of the
copy of the L/A furnished him by SID.

2.2.2 Where investigation is already terminated

(Termination Letter issued by the Assessment
Division) the office who has the possession of the
records shall, upon written request, immediately
forward the records to the SID concerned within five
(5) days from receipt of said written request.
LLpr

2.3 ...

2.4 If after the preliminary investigation on the tax fraud

complaint/information, the findings show no indications of
fraud, but a potential deficiency tax assessment exists,
investigation may be pursued upon approval by the RTFC.

2.5 ...

2.5.1 Where the SID has found substantial evidence of

fraud against subject taxpayer but the evidence
gathered, under the "best evidence rule", is not
sufficient to warrant criminal prosecution, the
investigation shall nevertheless be pursued and report
of the investigation including the Assessment Notice
& Letter of Demand shall be submitted to the
Regional Director, being the Chairman of the RTFC,

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 for approval imposing the legal increments thereon
as prescribed.

2.5.2. As required under Section 229 of the NIRC as

amended, Preliminary Assessment Notice/Notice to
Taxpayer shall be issued by the Chief, SID before the
final report shall be submitted.

2.5.3. After the approval of the report of investigation

together with the Assessment Notice and Letter of
Demand by the Regional Director, the said
Assessment Notice and Letter of Demand issued
therefor shall be immediately served to the taxpayer
concerned;

2.5.4 Where the tax liabilities have been fully paid by the
taxpayer, the docket of the case shall be forwarded to
the Administrative Division of the Regional Office
for safekeeping after the termination letter has been
issued by the Regional Director; and in case of
failure/refusal to pay the tax liabilities by the
taxpayer within the prescribed period, the docket
shall be forwarded to the Collection Division of the
Regional Office for the application of the civil
remedies under the NIRC for the collection of taxes.

3. REVENUE DISTRICT OFFICES

xxx xxx xxx

3.3 All complaints of tax fraud received by the RDO shall be

forwarded immediately to the SID for appropriate action.

xxx xxx xxx

Provisions of any regulation, rule or law which are inconsistent with this
Revenue Memorandum Order are hereby repealed. The remaining provisions of RMO
15-95 as amended shall remain in force.

This Order shall take effect immediately.

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 LIWAYWAY VINZONS-CHATO
Commissioner

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