Tax Updates January 2026 (SyCipLaw Tax Issues And Practical Solutions (T.I.P.S.) Vol. 42)

1. May the Court of Tax Appeals suspend tax collection proceedings when the summary remedy of distraint and/or levy was commenced even before the assessment became final and executory?

Yes. In Commissioner of Internal Revenue and LT Collection Enforcement Agency v. Court of Tax Appeals (Second Division) and American Wire & Cable Co., Inc., G.R. No. 280165, August 4, 2025, the Supreme Court (“SC”) ruled that the Court of Tax Appeals (“CTA”) acted within its authority in suspending the collection of deficiency taxes where the assessment had not yet become final and executory ? explaining that the premature collection would prejudice the taxpayer?s right to judicial appeal.

On February 26, 2024, American Wire & Cable Co., Inc. (?American Wire?) received a Final Decision on Disputed Assessment (“FDDA”) for alleged deficiency value-added tax. Before the lapse of the 30-day period to appeal the assessment to the CTA, the Commissioner of Internal Revenue (“CIR”) issued a Warrant of Distraint and/or Levy (?WDL?) to enforce collection.

On the last day of the appeal period, American Wire filed a Petition for Review with the CTA, together with an urgent motion to suspend tax collection and to lift the WDL.

The CTA granted the motion to suspend collection and ordered American Wire to post a bond, holding that initiating collection within the 30?day appeal period deprived the taxpayer of its statutory remedy of judicial appeal. The court further ruled that the CIR could not enforce administrative or judicial remedies for tax collection because the assessment was not yet final and executory.

The SC dismissed the petition for certiorari and prohibition filed by the CIR.

The SC affirmed the authority of the CTA under Section 11 of Republic Act (“RA”) No. 1125 to suspend tax collection at any stage of the proceedings when such collection may jeopardize the interests of the government and/or the taxpayer. The SC also reiterated that under Rule 10 of the Revised Rules of the CTA (“RRCTA”), a taxpayer may request the suspension of tax collection through a petition or separate motion before the tax court and must establish its entitlement thereto via affidavits and documentary evidence. In turn, the CTA is tasked to conduct a hearing on the request for suspension.

The SC held that the CTA properly justified its suspension order, having met the requirements of Section 11 of RA 1125 and the procedures under the RRCTA. It found that (1) the Bureau of Internal Revenue?s (“BIR”) use of summary remedies before the 30 day appeal period lapsed prematurely deprived the taxpayer of the chance to seek judicial review; (2) the CTA followed Rule 10 of the RRCTA by allowing comments, conducting a hearing, and considering the parties? submissions; and (3) the CTA appropriately required a bond, which protected the government?s interests during the suspension.

2. May the Court of Tax Appeals dispense with the bond requirement when suspending tax collection?

Yes. In Commissioner of Internal Revenue v. Robinsons Convenience Stores, Inc., G.R. No. 259968, August 27, 2025, the SC held that the CTA has broad discretion not only to suspend tax collection but also to dispense with the bond requirement when the collection measures are patently not sanctioned by law.

The BIR assessed taxpayer Robinsons Convenience Stores, Inc. deficiency income tax, value-added tax (“VAT”), expanded withholding tax, and withholding tax on compensation for the taxable year 2010. The taxpayer challenged the assessments before the CTA. After trial on the merits, the CTA cancelled the assessments on the grounds of prescription and lack of authority of the revenue officers who conducted the audit.

Despite the cancellation of the assessments, the CIR proceeded to issue a WDL. The taxpayer moved to quash the WDL and to suspend the collection of taxes. The CTA Third Division granted the motion, ordered the suspension of collection, and dispensed with the bond requirement citing the clear illegality of the collection efforts. The CIR filed a petition before the SC arguing that the posting of a bond is mandatory whenever collection is suspended and that there was no patent violation of the law to justify exempting the taxpayer from the same.

The SC denied the petition.

The SC reiterated that while Section 11 of RA No. 1125 generally requires the posting of a bond when collection is suspended, this requirement is not absolute. Under certain circumstances, the imposition of a bond may already be unwarranted; thus, at its discretion, the CTA may waive this requirement.

Citing Collector of Internal Revenue v. Reyes and Court of Tax Appeals, G.R. No. L-8685, January 31, 1957, the SC explained that the bond is a condition precedent for enjoining a lawful collection process, not an illegal one. This was further affirmed in the more recent case of Spouses Pacquiao v. Court of Tax Appeals, G.R. No. 213394, April 06, 2016, which states that:

From all the foregoing, it is clear that the authority of the courts to issue injunctive writs to restrain the collection of tax and to dispense with the deposit of the amount claimed or the filing of the required bond is not simply confined to cases where prescription has set in. As explained by the Court in those cases, whenever it is determined by the courts that the method employed by the Collector of Internal Revenue in the collection of tax is not sanctioned by law, the bond requirement under Section 11 of R.A. No. 1125 should be dispensed with. The purpose of the rule is not only to prevent jeopardizing the interest of the taxpayer, but more importantly, to prevent the absurd situation wherein the court would declare that the collection by the summary methods of distraint and levy was violative of law, and then, in the same breath require the petitioner to deposit or file a bond as a prerequisite for the issuance of a writ of injunction.

In this case, the SC held that since the CTA had already rendered a decision cancelling the assessments on the grounds of prescription and lack of authority of the revenue officers, the CIR?s resort to summary collection remedies was without legal basis. Requiring a bond under such circumstances would lead to an unjust and absurd result, effectively compelling the taxpayer to secure payment of a void assessment.

3. May a compromise payment made during a failed mediation for an ongoing tax assessment case be refunded?

No, a compromise payment made during a failed mediation may not be refunded.

In Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue, CTA EB No. 2898, November 24, 2025, the taxpayer had deficiency tax assessments for taxable years 2014, 2015, and 2016. In the proceedings before the CTA in relation to the 2016 tax assessment, the parties were referred to mediation. During the mediation proceedings, the CIR and the taxpayer explored a compromise settlement covering all three taxable years, subject to approval of the National Evaluation Board (“NEB”), pursuant to Section 204 of the National Internal Revenue Code of 1997, as amended (“Tax Code”).

The taxpayer, hoping to secure NEB approval, tendered compromise payments totaling PhP5,454,368.17, representing 10% of the total amount assessed against it. However, the CIR manifested in a memorandum to the CTA that no compromise settlement had yet been concluded. The CTA then declared the mediation unsuccessful. The taxpayer subsequently filed an administrative claim for refund for the compromise payment that it paid before the Revenue Region No. 5. The following day, the taxpayer filed a Petition for Review before the CTA asking for, among others, a refund of the compromise payment.

The CTA En Banc eventually ruled that a compromise agreement is a contract, and there is no perfection here because the NEB?s consent was never obtained. In making such a payment, the taxpayer here was fully aware that it may amount to nothing more than compliance with the procedural requirements necessary to perfect a compromise agreement. Thus, the mere tender of payment does not ensure NEB approval and necessarily implies that the taxpayer assumes the risk that its offer of compromise could be denied. In the event of such denial, the taxpayer cannot feign ignorance of its legal consequences, namely, the application of the payment as partial satisfaction of its tax liability, in accordance with applicable rules.

Thus, the compromise payments made by the taxpayer here were considered voluntary payments toward its outstanding tax liabilities that were subject of the cases pending before the CTA.

4. Is a taxpayer?s right to due process violated by the failure to conduct the required minimum number of surveillance days under Oplan Kandado?

Yes, the failure to conduct the minimum required number of surveillance days in enforcing Oplan Kandado constitutes a violation of the taxpayer?s right to due process.

In Commissioner of Internal Revenue v. Rebecca Duka, CTA EB No. 3050, December 22, 2025, the BIR conducted a post-evaluation of the taxpayer?s sales using Point of Sale (“POS”) data for taxable years 2018 and 2019 pursuant to Revenue Region Special Order and Mission Order issued by the Regional District Office (“RDO”). The Mission Order directed the BIR Revenue Officers to monitor the sales and place of establishment under surveillance.

The RDO issued a 48-Hour Notice requiring the taxpayer to explain “under oath” why its business should not be closed for alleged underdeclared sales for taxable years 2018 and 2019. In response, the taxpayer explained that the “current grand total” and ?previous grand total? figures do not represent sales data recorded independently by each POS terminal, but reflect cumulative, centralized, and compounding sales figures that are affected by transactions from other terminals, depending on the order in which terminals are closed.

Notwithstanding the explanation, the BIR still issued a 5-day VAT Compliance Notice, which required the taxpayer to either comply or file a protest. Duka subsequently filed a protest against the 5-day VAT Compliance Notice, but it was denied for lack of factual basis. The taxpayer then filed a request for reconsideration of the denial of the protest, but the RDO nevertheless issued a Closure Order against the taxpayer.

The taxpayer then filed a petition for review before the CTA to assail the lack of proper surveillance under Revenue Memorandum Order (?RMO?) No. 3-2009 (referred to as the guidelines of the “Oplan Kandado” program). The CTA Second Division granted the petition for review and cancelled the 48-Hour Notice, 5-day VAT Compliance Notice, and Closure Notice for denial of due process. The CIR appealed to the CTA En Banc.

The CTA En Banc emphasized that the Mission Order required the BIR to conduct surveillance of the taxpayer?s business, but the supposed surveillance consisted only of a single four-hour visit, far short of the mandatory minimum ten-day surveillance period under RMO No. 3-2009. This surveillance is a safeguard under Oplan Kandado, serving as the factual basis for issuing a 48-Hour Notice and the subsequent 5-Day VAT Compliance Notice, and Closure Order. The BIR failed to show compliance with, or exemption from, this requirement.

The CTA En Banc ruled that while Section 115 of the Tax Code authorizes business closure for certain violations, it must be implemented strictly in accordance with RMO No. 3-2009, which mandates the minimum 10-day surveillance.

The BIR argued that the Mission Order was issued not for surveillance under RMO No. 3-2009, but for post-evaluation of the taxpayer?s POS machines pursuant to RMO No. 15-2018, which governs the extraction and analysis of Z-readings and eSales journals. However, the CTA En Banc ruled that RMO No. 15-2018 merely supplements procedures for POS post-evaluation and does not dispense with the surveillance requirement or independently justify closure.

The CTA En Banc ruled that the taxpayer could not be classified as a non-compliant taxpayer because no valid surveillance was conducted. Furthermore, post-evaluation based solely on the extracted POS data does not constitute substantial evidence of the committed violation. The failure to observe mandatory procedural requirements violated the taxpayer?s right to due process, rendering the 48-Hour Notice, 5-Day VCN, and Closure Order null and void.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.