Preservation of Books of Accounts

Section 1 clarifies that the regulations are issued pursuant to Section 244, in relation to Sections 5, 6, 203, 235, and 222 of the National Internal Revenue Code of 1997 (NIRC), as amended.
Section 235 of the NIRC requires preservation of books of accounts and other accounting records by taxpayers, running from the last entry until the last day for assessment under Section 203.
Section 203 of the NIRC requires assessment within three (3) years from the last day prescribed by law for filing the return, with a three (3)-year counting rule when the return is filed beyond the deadline.
Section 222 of the NIRC provides exceptions that allow assessment and related proceedings beyond three (3) years in specified cases.
Section 244 in relation to these provisions establishes the BIR’s regulatory power to prescribe retention periods and guidelines for preservation of records.

The regulations require preservation of records to ensure taxes due to the government can be readily and accurately ascertained at any time.
The regulations recognize that the BIR’s right to examine and/or inspect books and accounting records may extend beyond the three (3)-year assessment limitation.
The regulations ensure that taxpayers can produce records to support their defenses during regular or extraordinary audits and related assessments.
The regulations set a retention period of ten (10) years to balance government enforcement needs and taxpayer audit-readiness.

Taxpayers must preserve not only books of accounts but also subsidiary books and other accounting records.
“Other accounting records” includes the corresponding invoices, receipts, vouchers and returns, and other source documents supporting entries in the books of accounts.
“Last entry” refers to the particular business transaction or item thereof that is entered or posted last or latest in the books of accounts when the same was closed.
Taxpayers must preserve records for the applicable retention period even where records relate to transactions entered earlier, based on the “last entry” concept.
The regulations require that audited and certified financial statements be preserved for an additional defined period as described under the retention rules.

All taxpayers must preserve books of accounts (including subsidiary books and other accounting records) for ten (10) years.
The ten (10)-year period is reckoned from the day following the deadline in filing a return, or from the date of filing the return if filed after the deadline, for the taxable year when the last entry was made in the books of accounts.
Source documents included in “other accounting records” must be preserved for ten (10) years counted from the date of last entry in the books to which they relate.
If the taxpayer has any pending protest or claim for tax credit/refund of taxes, and the books and records concerned are material to the case, preservation must continue until the case is finally resolved.
Unless a longer period is required under the NIRC or other relevant laws, the independent Certified Public Accountant (CPA) who audited the records and certified the financial statements must maintain and preserve copies of the audited and certified financial statements for ten (10) years from the due date of filing the annual income tax return or the actual date of filing thereof, whichever comes later.

Taxpayers must keep, at all times, the books, registers, other required records, vouchers, and supporting papers required by the BIR, at the taxpayer’s place of business.
Records are subject to inspection by any internal revenue officer, and upon demand, the taxpayer must immediately produce and submit them for inspection.
Records may be examined and inspected for purposes of regular audit or extraordinary audit.
Records may be examined and inspected in connection with requests for exchange of information by a foreign tax authority under Sections 6 and 71 of the NIRC.
Records may also be examined and inspected in the exercise of the Commissioner’s power to obtain information under Section 5 of the NIRC.
Examination and inspection must be done either in the taxpayer’s office or place of business or in the office of the BIR.

Tax-exempt organizations and grantees of tax incentives must preserve their books of accounts and other pertinent records subject to BIR examination to determine compliance with the conditions for tax exemption or tax incentives and their tax liability, if any.

Any violation of these regulations is subject to the penalties provided in Sections 266, 275, and other pertinent provisions of the NIRC.
Violations are also subject to penalties under Section 6 of Republic Act No. 10021 (Exchange of Information on Tax Matters Act of 2009).

All internal revenue issuances and rulings inconsistent with these regulations are amended or revoked accordingly.
No separability clause is provided in the operative parts of these regulations beyond the general amendment/revocation directive.