Tax Audits and Compliance Procedures

Questions and Answers

What is the primary responsibility of the BIR in relation to tax audits?

Reviewing all tax returns filed by taxpayers

Collecting overdue taxes from delinquent taxpayers

Prescribing policies, guidelines, and procedures for conducting audits (correct)

Issuing tax refunds to eligible taxpayers

Which of the following scenarios would classify a taxpayer for a mandatory case audit?

A taxpayer experiencing low revenue during the fiscal year

A taxpayer with no recent transactions reported

A taxpayer applying for a tax refund for erroneous payments (correct)

A taxpayer with a recent change in business structure

Upon receiving an electronic Letter of Authority (eLA), what are the two options a taxpayer has?

Hire a tax lawyer or negotiate with the BIR

Request a postponement or request a second eLA

Accomplish the requirements themselves or hire a tax practitioner (correct)

Ignore the eLA or file a formal complaint

What is the primary goal of the Audit Program established by the BIR?

To enhance voluntary compliance with tax regulations Signup and view all the answers

What does the eLA empower the revenue officer to do?

Conduct assessment functions and recommend deficiency taxes Signup and view all the answers

Which document would NOT typically be included in the second page of an eLA?

Checklist of tax liabilities Signup and view all the answers

What does the enforcement function aim to achieve in the context of tax audits?

Encourage accurate reporting and timely tax payments Signup and view all the answers

What type of taxpayers may be prioritized in audits according to BIR guidelines?

Priority taxpayers or industries identified by the regional director Signup and view all the answers

Which action is NOT typically associated with tax audits?

Collecting overdue payments through physical audits Signup and view all the answers

Which content is typically found on Page 1 of the eLA?

The eLA itself, granting audit authority Signup and view all the answers

Study Notes

Tax Audits

Aim to verify the accuracy of tax returns in relation to tax liabilities or repayments.
Identify additional liabilities along with potential interests, surcharges, or penalties owed.
The Bureau of Internal Revenue (BIR) sets policies, guidelines, and procedures for conducting audits.

Audit Program

Developed by the BIR to promote voluntary compliance among taxpayers.
Encourages accurate payment of internal revenue taxes through enforcement measures.

Selection for Audit

All taxpayers are potential candidates for tax audits.
Issuance of electronic Letters of Authority (eLAs) signals the start of an audit investigation.
Investigations may include:
- Mandatory Cases: Taxpayers seeking tax refunds, rectifying erroneous payments, claiming tax credit certificates, or closing businesses.
- Priority Taxpayers/Industries: Focus on specific sectors as deemed important by authorities.
- Other priority audits identified by regional directors or large taxpayer services.

What to Do Upon Selection for an Audit

When receiving an eLA with required documents, taxpayers have two options:
- Complete the requirements independently (DIY).
- Engage a tax practitioner accredited by the BIR to manage the audit process.

Electronic Letter of Authority (eLA)

Authorizes revenue officers to assess taxes within a specific scope and recommend deficiency tax assessments.
Acts as a necessary document for validating tax examinations and assessments.

Purpose of eLA

Provides legal authority for tax agents to conduct audits.
Without it, revenue officers are restricted from performing assessments.

Contents of eLA

Page 1 includes the eLA document.
Page 2 provides a checklist of required documents for the audit, such as financial statements, accounting books, and inventory lists.

Description

This quiz covers the fundamentals of tax audits, focusing on their role in assessing the accuracy of tax returns and the responsibilities of the Bureau of Internal Revenue (BIR). It also discusses the audit program created to promote voluntary compliance among taxpayers. Test your knowledge on internal revenue tax regulations and policies.