The foundation of any sovereign state rests on the ability to collect revenue, a principle often encapsulated in the legal maxim that “taxes are the lifeblood of the nation.” This overarching authority stems from the state’s inherent power of taxation, which exists even without an express provision in the Constitution. Precisely because the power is so encompassing, its execution by the taxing authority must be conducted with utmost care and integrity.
However, present clamour against ghost flood control projects that highlighted massive corruption of hard-earned taxpayers’ money in the bureaucracy uncovers complaints over the misconduct of taxing authorities. Under the scrutiny of the public eye is the alleged weaponisation of Letters of Authority (LOAs).
The LOA is the official document issued by the Commissioner of Internal Revenue (CIR) or their duly authorised representative that empowers specific revenue officers to examine and audit the books of accounts and other financial records of a taxpayer for a specific period.
Recognising the urgent need to address systemic issues and protect taxpayer rights, the BIR, under the new leadership of Commissioner Charlito Martin R. Mendoza, issued an immediate suspension of all audits aimed at a systemic reform and the restoration of public trust through the issuance of Revenue Memorandum Circular (RMC) No. 107-2025.
The Scope of the Suspension
RMC No. 107-2025 mandates an immediate and indefinite suspension, beginning 24 November 2025, of all ongoing field audits and related field operations by the BIR, such as the issuance of LOAs and Mission Orders (MOs), examinations, and verification of taxpayers’ books of accounts and other accounting records. During the suspension period, no LOA and MO shall be created, printed, signed, or served by the BIR to taxpayers.
The temporary suspension applies to all BIR offices involved in audit and field operations, including the Large Taxpayers Service (LTS), Revenue Regions (RRs), Revenue District Offices (RDOs), National and Regional Investigation Divisions, Assessment Divisions, VAT Audit Units (LTS), and VAT / Special Audit Sections.
Where Audits Still Proceed
While the coverage is comprehensive, the suspension does not cover the following instances:
- Audits prescribing within six (6) months from November 24, 2025;
- One-time transactions, such as estate tax, donor’s tax, and Capital Gains Tax;
- Examination of taxpayers retiring from business;
- Active criminal investigations based on verified intelligence;
- Refund claims where issuance of LOA is statutorily required; and
- Other matters where deadlines have been imposed or under orders of the Commissioner.
As such, the issuance of Assessment Notices, Warrants, and Seizure Notices under the exceptions shall continue. Revalidation, extension, replacement, or supplementary LOA and MO may also be issued in connection with these circumstances.
Effect on the Ongoing Assessments and Compliance
The issuance of RMC No. 107-2025 has prompted questions among taxpayers regarding its impact on their ongoing assessments and whether their current cases fall within the scope of the suspension order.
From the wordings of the said RMC, the Stop Audit directive does not cover taxpayers under assessment for taxable year 2022, as they are considered prescribing cases.
Taxpayers who received Assessment Notices, such as Notice of Discrepancy (NOD), Preliminary Assessment Notice (PAN), or Final Assessment Notice with Formal Letter of Demand (FAN/FLD), before the issuance of the said RMC, must note that the suspension does not allow them to delay the filing of their reply or protest. Hence, replies or protests must still be filed within the statutory prescriptive periods under the Tax Code, as amended.
Another question is whether taxpayers who have already filed their protest to a FAN/FLD prior to the issuance of the RMC can get some relief during the suspension period. Section 228 of the Tax Code, as amended, requires the BIR to decide on the protest within one hundred eighty (180) days from submission of documents. Thereafter, the taxpayer adversely affected by the inaction of the Commissioner may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the one hundred eighty (180)-day period. In such a case, will the running of the 180-day period continue despite the RMC? If so, may the taxpayer exercise their right to file their appeal to the CTA after the lapse of the 180-day period?
Cases already at the payment stage are also not hindered by the suspension. In fact, the RMC provides that taxpayers may voluntarily pay their known deficiency taxes without needing the approval from the appropriate revenue officials. By opting for voluntary payment, taxpayers can mitigate exposure to further interest and penalties.
For now, taxpayers are looking forward to a clarificatory issuance from the BIR that will provide detailed guidance on how RMC No. 107-2025 applies to ongoing cases, particularly those already in various stages of the assessment stage. Such guidance is expected to address grey areas and outline compliance steps once audit operations resume.
The temporary suspension of BIR audits also provides taxpayers with a critical opportunity to strengthen their compliance. This period should be maximised to review internal practices and ensure proper documentation to address common findings by the BIR.
Auditing the Auditor: The Mechanism for Reform
Far from being an administrative pause, RMC No. 107-2025 represents an institutional reset designed to strengthen internal discipline, ensure the integrity of the audit processes, promote compliance, and foster trust among taxpayers.
To materialise these reforms, the RMC mandates the creation of a Technical Working Group (TWG) or Review Committee on LOA Integrity and Audit Reforms, tasked with the following:
- Evaluation of current policy frameworks;
- Identification of operational and systemic vulnerabilities;
- Recommendation of a revised, integrity-based LOA issuance protocol and
- Integration of digital safeguards and uniform audit standards.
Further, the RMC also includes a strong stance on internal policing and enforcement, that even BIR personnel are not immune to regulation and the standards of integrity and accountability, such that their non-compliance constitutes an administrative offense.
While taxes remain the lifeblood of the nation, the outcry of the people—the very source of this revenue—is fundamentally valid. When the power of taxation is wielded with irregularities and inconsistencies, trust erodes, creating an environment for further abuse.
The issuance of RMC No. 107-2025 is therefore both timely and necessary. By suspending audit operations to reform internal policies, the BIR signals its commitment to a transparent, accountable, and hopefully, conscientious approach in exercising its authority.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 02 December 2025
