REVENUE MEMORANDUM CIRCULAR NO. 44-2002, SEPTEMBER 17, 2002, September 17, 2002
ACCOUNTING METHODS TO BE USED BY TAXPAYERS FOR INTERNAL REVENUE TAX PURPOSES
It has been observed that there are
taxpayers who file their tax returns under an accounting method that is
different from the method followed in keeping their books of accounts. This
practice is devoid of legal basis and runs counter to the provisions of
Sec. 43 of the National Internal Revenue Code (NIRC) of 1997 which
reads as follows:
“SEC. 43. General Rule. — The taxable income shall be computed upon the basis of the taxpayer’s annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer;
but if no such method of accounting has been so employed, or if the
method employed does not clearly reflect the income, the computation
shall be made in accordance with such method as in the opinion of the
Commissioner clearly reflects the income. If the
taxpayer’s annual accounting period is other than a fiscal year, as
defined in Section 22(Q), or if the taxpayer has no annual accounting
period, or does not keep books, or if the taxpayer is an individual, the
taxable income shall be computed on the basis of the calendar year.”
Whenever there are differences between
the provisions of the Tax Code and its implementing rules and
regulations, on one hand, and the generally accepted accounting
principles (GAAP) and generally accepted auditing standards (GAAS), on
the other hand, the same must be fully disclosed in the financial
statements and/or income tax returns. For this
purpose, that portion of the income tax return intended for the
reconciling items shall always be properly accomplished. In any event, the income tax return and all other tax returns, for that matter, shall always conform with internal revenue laws, rules, regulations and other issuances.
Thus, the aforementioned practice
should be stopped immediately and all returns prepared following
aforesaid practice should be dealt with in accordance with the
appropriate provisions of the law.
All internal revenue officials and employees are enjoined to give this circular as wide a publicity as possible.
Adopted: 17 Sept. 2002
(SGD.) GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue