Anyone who has watched the movie Avengers: Endgame will remember the villain Thanos saying, “I am inevitable.” The whole idea for making this claim is to impress upon moviegoers that the villain will be near-impossible to stop, despite the heroes’ best efforts.
Thanos came to mind when I read Revenue Memorandum Circular (RMC) No. 121-2022 issued on Aug. 22). The RMC is known as, “Guidelines on the Lifting of Suspension of Field Audit and Operations Pursuant to Revenue Memorandum Circular No. 77-2022.” Like Thanos and inevitability, this RMC was effectively a warning to taxpayers that we should, yet again, hold on to our seats because what’s to come will be unavoidable.
BRIEF RECAP OF RMC 77-2022This RMC, issued on May 30, froze all field audits, field operations, or any form of business visitation in execution of Letters of Authority/Audit Notices (LoAs) or Mission Orders (MOs).
Additionally, no written orders to audit and/or investigate taxpayers’ internal revenue tax liabilities are to be issued and/or served, except in the following cases:
1. Investigation of cases prescribing on or before Oct. 31, 2022;
2. Processing and verification of relevant tax returns on the sale of real property or shares of stock;
3. Examination and/or verification of internal revenue tax liabilities of taxpayers retiring from business; Audit of National Government Agencies (NGAs), Local Government Units (LGUs), and Government-Owned and -Controlled Corporations (GOCCs) including subsidiaries and affiliates; and
4. Other matters/concerns where deadlines have been imposed under the orders of the BIR Commissioner.
However, service of assessment notices, warrants, and seizure notices should still be effected.
While the RMC emphasized that the BIR may actually still issue assessment notices [e.g., Preliminary Assessment Notices (PAN), or Final Assessment Notices (FAN)] in relation to any ongoing audits, we clearly saw a significant decline in the overall conduct of audits by the BIR during this period. With BIR audits practically halted, taxpayers got more time to focus on other pressing matters or do more in-depth reconciliations of any assessed taxes.
BIR TARGET AND COLLECTION PERFORMANCEIn 2022, the revenue target for the BIR was around P2.39 trillion. In the cash operations report released by the Bureau of the Treasury, while the BIR’s collection for the first half grew 9.76% from a year earlier, it fell short of the current year’s targets by 2.77%. Although the shortfall seems small, the suspension of audits will inevitably add to the pressure on the BIR to make up in the second half of the year. Once the 3rd quarter collection report is released, we will have a clearer view of how potentially aggressive the BIR may become to achieve their target revenue for the year.
RMC 121-2022 — HOLD ON TO YOUR SEATSAfter a 3-4 month hiatus, RMC No. 121-2022 provides guidelines on the lifting of the audit suspension. In the RMC, the suspension of field audits and other field operations on all outstanding LoAs/Audit Notices, and Letter Notices pursuant to RMC No. 77-2022 was lifted on a per Investigating Office basis, upon approval by the Commissioner of Internal Revenue (CIR) of the Memorandum Request from the authorized requesting official depending on the BIR office (e.g., RDO, LTAD).
Upon approval of the request, the Investigating Office may immediately resume field audits and other field operations on all outstanding LoAs/Audit Notices, and Letter Notices. However, no new LoAs, written orders to audit and/or investigate a taxpayer’s internal revenue tax liabilities may be issued and/or served except: (1) in those cases enumerated under RMC No. 77-2022; and (2) in case of reissuance(s) due to change of revenue officer and/or group supervisor.
Since the request and approval to resume tax audits is done on a per Investigating Office basis, as of this writing, some RDOs have already resumed their field audit operations while some are still on hiatus. Nonetheless, given that it has already been a month since the issuance of RMC No. 121-2022, we can reasonably expect that what we thought has “passed” is indeed “inevitable.”
It is also noteworthy to emphasize that unless the specific conditions under RMC No. 77-2022 are present, the BIR is still not allowed to serve LoAs for other taxable years not currently under audit/investigation. However, bear in mind that the service of new LoAs will eventually be lifted. Nonetheless, for now taxpayers will be able to focus on their ongoing tax audits, without the fear of additional new LoAs being potentially served by the BIR during this period.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Steven Lloyd Co is a manager at the Tax Services department of Isla Lipana & Co., the Philippine member firm of the PwC network.
+63 (2) 8845-2728