Question & AnswerQ&A (REVENUE MEMORANDUM CIRCULAR NO. 44-2002, SEPTEMBER 17, 2002)
A taxpayer should compute taxable income based on the method of accounting regularly employed in keeping the books of accounts, as provided in Sec. 43 of the National Internal Revenue Code (NIRC) of 1997.
Section 43 of the National Internal Revenue Code (NIRC) of 1997 prohibits the practice of filing tax returns under an accounting method different from the one used in keeping the books of accounts.
If the accounting method employed does not clearly reflect income, the computation of taxable income shall be made according to a method that, in the opinion of the Commissioner, clearly reflects income.
If the taxpayer has no annual accounting period or does not keep books, or if the taxpayer is an individual, taxable income shall be computed on the basis of the calendar year.
Taxpayers must fully disclose any differences between the Tax Code and GAAP or GAAS in their financial statements and/or income tax returns, including properly accomplishing the reconciling items portion of the income tax return.
No, all income tax returns and other tax returns must conform with internal revenue laws, rules, regulations, and other issuances.
Internal revenue officials and employees are enjoined to give wide publicity to this circular and ensure that the practice of using different accounting methods for books and tax returns is stopped immediately.
The main purpose is to enforce the proper use of accounting methods consistently used in keeping books of accounts for tax purposes and to stop the practice of reporting taxable income under a different accounting method.
Section 43 of the National Internal Revenue Code (NIRC) of 1997 is cited regarding the use of accounting methods for computing taxable income.