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Submission of books of accounts during tax investigation

Submission of books of accounts during tax investigation by: Alfredo Q. Merto

Under the 1997 Tax Code, the Commissioner of Internal Revenue (CIR) is authorized to investigate the business transactions of a taxpayer through the latter’s books of accounts, accounting records, and other documents to determine whether the taxpayer has paid the correct taxes to the government.  The Bureau of Internal Revenue (BIR) uses tax audits or assessments as tools in enhancing voluntary tax compliance, thereby fulfilling its mandate of ensuring that correct taxes are paid.

During the course of a tax audit, the BIR requires taxpayers to submit their books of accounts and other records to facilitate the conduct of its investigation.  If, for some reason, a taxpayer fails to submit the required documents on time, how does the BIR deal with such taxpayer?     

To give revenue officers (ROs) more teeth in enforcing the requirements of a tax audit, the BIR has recently issued Revenue Memorandum Order No. (RMO) 45-2010 which revises the  procedures in dealing with taxpayers who refuse to produce requested documents or records, and the guidelines in the issuance of subpoena duces tecum (SDT) to compel non-cooperative taxpayers to submit the required documents or records.  Below are the procedures laid down in the RMO:

      1.  If the taxpayer disregards the Letter of Authority (LA), and the checklist of presentation of the requirements for the audit or access to records request, the RO concerned shall send a first notice to the taxpayer after 10 calendar days from receipt of the LA and checklist of requirements/access to records request, demanding the taxpayer to furnish to the RO the requirements previously requested; 

      2.  If the taxpayer ignores the first notice and continues to disregard the demand for the submission of documents, the RO shall issue the second and final notice after 10 calendar days from receipt of the first notice; 

      3. If the taxpayer still refuses after 10 calendar days from receipt of the second and final Notice to comply with the requirements of the said notice, the RO shall request the issuance of SDT from the BIR’s Legal Service (National Office), Legal Division (regional office), or any authorized office, as the case may be; 

      4. The Legal Service, Legal Division or any other authorized office shall act on the request for the issuance of SDT within five calendar days from receipt of such request. Once received, the RO must serve immediately the SDT to the taxpayer;  

      5. If the taxpayer refuses to comply with the SDT, the concerned BIR legal office shall file a criminal case against the taxpayer for violation of Section 5 in relation to Sections 14 and 266 of the National Internal Revenue Code; and/or initiate a proceeding to cite the taxpayer for contempt under the Revised Rules of Court; and  

     6. If the taxpayer subsequently requests for the dismissal of the cases filed in court and submits the requested information, the concerned BIR office shall concur with such request for dismissal upon the submission of the requested document/s and the payment of penalty by the taxpayer of P10,000 for the delayed compliance and violation of pertinent provisions of the revenue regulations. 

This current initiative by the BIR speeds up the process leading to the issuance of the SDT, a move which is intended to compel taxpayers to immediately comply with the requirement to submit the documents requested by the BIR. This will help expedite the completion of the tax investigation being conducted by the BIR. 

However, we all know for a fact that in some cases, there are valid reasons which constrained taxpayers from submitting the required documents.  For instance, many taxpayers affected by Typhoon Ondoy were unable to submit thei r books of accounts and/or records in the course of investigation by the BIR since these got lost or damaged during the typhoon.  In this particular situation, would the BIR, following RMO 45-2010, proceed with the issuance of SDT and the filing of a case against the taxpayer?   

Since RMO 45-2010 does not deal with this particular case, would the BIR then proceed with the assessment based on the “best evidence obtainable rule” under Revenue Memorandum Circular No. (RMC) 23-00?  

Under Section 6(B) of the 1997 Tax Code, the CIR has the authority to assess the proper tax based on “best evidence obtainable”. As clarified in RMC 23-00, assessment based on “best evidence obtainable” applies when the report or records requested from the taxpayer are not forthcoming (i.e., the records are lost, the taxpayer refuses to submit the records, or the reports submitted are false, incomplete or erroneous). In cases where the taxpayer has valid reasons for the non-submission of required documents, the BIR should proceed with the tax assessment based on the “best evidence obtainable rule” without resorting to the issuance of SDT and the filing of a criminal case against the taxpayer.      

This recent issuance from the BIR further emphasizes the need for taxpayers to be diligent in complying with their obligations to preserve their books of accounts and other accounting records and keep them intact and available during BIR tax investigations. 

This article is not intended to be a substitute for professional advice.  For comments and inquiries, you may e-mail the author at  For other tax concerns, please check out our other tax services.