A losing Panglao politician won her case she filed two years ago against three Bureau of Internal Revenue personnel resulting in their dismissal from service. A case for extortion was filed by former Panglao councilor Nila Montero against Bonifacio Ybanez, special investigation chief; Revenue Officer I Edgar Palgan and Intelligence Officer I Francis Mercado before the Office of the Ombudsman. Palgan died while the case was pending. The two BIR officials are assigned at the Special Investigation Division of the BIR Region No. 13 in Cebu city. Until his death, Palgan who was from Sikatuna town was assigned in the same BIR division. Filed in her capacity as operator of the Alona Tropical Tourist Inn and Beach Resort, Montero (she was Panglao councilor for two terms until she lost when she ran for vice mayor in the last elections) claimed that the three tried to extort money from her in exchange for a supposed tax deficiency. Per BIR records, Montero was found to have an under-declared income in 2005. The tax default amounted to P60,000 and the three BIR officials promised to absolve her tax violation.

In finding the tax case, the three revenue officials stayed in the Montero-owned resort in the guise of conducting a surveillance operation. It turned out that their target was Montero herself. According to Montero, it was Palgan who invited her to appear to the BIR regional office to discuss their surveillance findings. The BIR found Montero to have under-declared her income from January to March 2005 which amounted to P200,970.61. She was not shown, however, the alleged surveillance report. The shakedown did not end there. Again, the taxpayer was invited by the BIR men in a coffee shop in Cebu City, this time showing a written finding. It was their second meeting. Another meeting took place and this time, Mercado reportedly gave to Montero his calling card and his ATM bank account number. That done, the BIR man instructed the former councilor to deposit P60,000 to defray the taxpayer's tax deficiency. However, instead of complying the BIR instruction, Montero sought police assistance. An entrapment operation was planned to pin down the erring revenue officials.

The entrapment was conducted on August 2, 2005 resulting in the arrest with the marked money of Palgan and Ybanez. In his counter-affidavit, Ybañez denied having demanded money from Montero. He said he did not authorize any of his staff to solicit money from Montero. For his part , Palgan contended that Alona Tropical Tourist Inn and Beach Resort was among those enumerated in a denunciation letter by a concerned taxpayer identified as Benjamin Udtohan. The letter alleged a non-declaration of true income and non-payment of correct taxes on the part of Montero. Palgan admitted that on many occasions he sat down with Montero but it was for the purpose of settling Montero's tax account. When the dismissal recommendation was reviewed by Ombudsman Merceditas Gutierrez, she ruled that while it was true that there was a denunciation letter, the BIR officials were not clothed with any authority to conduct the investigation and surveillance operation.