BIR ends audit freeze: New rules in motion

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The Bureau of Internal Revenue (BIR) lifted the nationwide suspension of tax audits and field operations on Jan. 27 2026 through Revenue Memorandum Circular (RMC) 8-2026, ending a pause that began in November 2025 following a leadership change.

Alongside this, it issued Revenue Memorandum Order (RMO) 1-2026 prescribing revised policies, controls and procedures for audit and assessment processes. The overarching aim is to ensure transparency, prevent abuse of audit authority, uphold due process and promote responsibility and accountability.

Ending audit overlaps

A central reform under the RMO is the Single-Instance Audit Framework, where a taxpayer, in the event of a tax audit, should be subjected to only one audit in a taxable year through a single electronic Letter of Authority (eLA) encompassing all applicable internal revenue taxes, including VAT. This approach effectively prevents overlapping assessments, where multiple divisions audit the same taxpayer for different taxes in the same year. Under the RMO, multiple or overlapping eLAs are generally prohibited, except in limited cases and subject to certain conditions, such as One-Time Transactions, requests for tax clearance, business closure and fraud.

Starting March 4, 2026, all ongoing audits previously covered by multiple eLAs will be consolidated into a single eLA, cancelling earlier eLAs and serving as the sole audit authority for the Revenue District Office, Office Audit Section or Large Taxpayers Audit Divisions. The RMO allows taxpayers with pending VAT and non-VAT eLAs to file a Request for Non-Consolidation to keep the audits separate under the current examiners until April 30, 2026. However, this option is only available until Feb. 16, 2026, after which all remaining eLAs will be automatically consolidated on May 4, 2026.

While the RMO does not preclude taxpayers from voluntarily settling any assessed or admitted deficiencies, interpretive questions remain. In the case of a taxpayer with only a pending VAT audit, does settling that case exempt it from an eLA covering other tax types for the same taxable year, assuming such year is still an open year? The RMO is silent on this matter.

A related concern arises for VAT-only audits: could automatic consolidation trigger a full-blown audit covering other taxes? Section V(C) states that, in the absence of a subsisting eLA, a replacement eLA shall be issued to ensure continuity of the audit. This raises uncertainty as to whether VAT-only audits can remain standalone cases without conflicting with the Single-Instance Audit Framework.

Risk flags drive audit selection

To further streamline audits, the RMO introduces System-Assisted Audit Selection, where all taxpayers are potential subjects, but only those identified through risk?based criteria will be audited. Annex A of the RMO outlines the initial selection criteria, while a more comprehensive framework for taxpayer selection, case assignment, and eLA issuance is expected by April 16, 2026.

Audit selection is divided into mandatory and priority cases.

• Mandatory cases include taxpayers with at least 30 percent under-declaration of sales or income, overstated expenses, those enjoying tax incentives and instances of non-compliance flagged via Spontaneous Exchange of Information. Application of this last category remains unclear, leaving taxpayers uncertain about its scope.

• Priority cases involve unusual reporting patterns, such as sharp drops in reported sales or VAT payments, spikes in exempt or zero-rated revenues or businesses operating for over five years without prior audits. At this point, thresholds and assessment methods have not yet been identified.

Identified taxpayers will be automatically listed based on approved criteria and submitted to the Commissioner of Internal Revenue (CIR) for approval. Only those on the approved list may receive eLAs. However, BIR offices may recommend additional taxpayers not initially selected. If justified and endorsed, these may be added subject to validation and final approval.

To enhance confidentiality and transparency, the RMO introduces a process wherein taxpayers’ identities remain undisclosed during initial case assignments. Revenue Officers or Group Supervisors are informed only once assignments are confirmed. Any deviation requires written justification and prior approval from the CIR.

Checklist and choices: Where audits happen

The RMO introduces a standardized audit checklist to guide document requests, while limiting additional document requests to those directly relevant to the specific issues identified in the audit, necessary for proper evaluation, and within the authorized audit scope. The issuance also specifically requires that all requests be properly documented.

Under the RMO, inspections of books of accounts and other records may be conducted at the taxpayer’s registered place of business or at the BIR office. However, where records are voluminous or transporting them would disrupt normal operations, the RMO states that taxpayers shall be given reasonable options on the manner and venue of examination. This reflects the BIR’s recognition of the need for flexibility, enabling taxpayers to comply without disrupting their business operations.

With the audit freeze lifted, the BIR has put RMO 1-2026 into motion, introducing reforms that aim to simplify audits, prevent overlaps and reinforce accountability. While the goal of greater transparency, consistency and fairness is clear, many questions remain unanswered. The public deserves timely guidance from the BIR — clear instructions, answers to lingering concerns and practical support to ensure that compliance is not only effective, but also fair under this evolving tax audit framework.

Allyson Anne Flomar is a Supervisor from the Tax Group of R.G. Manabat & Co. (KPMG in the Philippines), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Allyson Anne Flomar or Maria Myla Maralit through [email protected], social media or visit www.home.kpmg/ph.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.