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:

A.

x x x x

B.        JURISDICTION

1.      TAX FRAUD DIVISION

1.1       .x.x.x x

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     x x x x

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

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 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

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:

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.

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.

2.3       x x x x x

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       x x x x x

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, 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

3.3           All complaints of tax fraud received by the RDO shall be forwarded immediately to the SID for appropriate action.

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.

Adopted: 7 April 1997