Archive for the ‘Helen Guerin’ Category

Tax audits: the new procedure

Saturday, March 15th, 2003

Irish Farmers Journal

By Helen Guerin of Martin Rea, Tipperary

Revenue audits have now been a fact of life since 1988. They were put in place alongside self-assessment for self employed tax payers. Self-assessment was the carrot & the Audit, the stick.

From 1988 to 1/9/02 the format for audits remained basically the same. If you have not had personal experience of an audit yourself then you probably know of someone who has.

The scenario went as follows. An audit letter was sent to you giving you a few weeks notice of the audit date. You met with your accountant in this intervening time and the accountant said to you – “if you have any sins to confess, now is the time”.

Maybe you then told him about the other bank account(s) where you were salting away a few pound/euro and he persuaded you to come clean. A disclosure of non-returned income lodged in these accounts was alluded to verbally on the day of the audit.

There was nothing put in writing and certainly there was no outstanding liabilities to tax, interest or penalties quantified on the day of the audit.

The Inspector took away the books and records to examine them and then the accountant started to quantify the undisclosed income in the bank accounts.

The amounts of income undisclosed would be quantified by the accountant and his calculations would be submitted to the tax inspector who would then proceed to quantify the tax.

A payment on account may or may not have been made at this stage to show cause and to minimize interest accruing. Haggling would ensue as to the amounts of interest and penalties would be charged, though in more recent settlements statutory interest would always apply.

The penalties, however, as a result of disclosure as vague as that outlined above could be negotiated down to nothing or a nominal sum of as little as £100 (€127) per year.

The outstanding liability as a result of the audit was paid over to the Revenue at the end of the audit when everything was agreed and finalised.

In many audits, publication was a negotiable issue and while prosecution did happen, it wasn’t an everyday occurrence. This was the Revenue Audit (old style).

The new style Revenue audit is a different animal. The new procedures are in place for all audits commencing 1/9/02. A three week notice period is given to the tax payer.

You must, now, however inform the Revenue within 14 days of the issue of notification of the audit that you intend making a disclosure.

You and your accountant are then allowed 60 days to quantify the shortfall and to make the relevant payment.

The statement of disclosure must be in writing. It must show the sources of income not previously disclosed. It must include a computation of all the taxes, duties, PRSI and levies and a statement totalling all these taxes and interest and penalties thereon for each period concerned.

A declaration must be made that the disclosure is correct and complete. The disclosure must be submitted with the relevant payment.

And then the audit begins.

Statutory interest is at the rate of 1% per month charged on a daily basis. This is non-negotiable.

The rate of penalty charged, in addition to the interest, however, depends on the greviousness of your sin.

You may make an unprompted disclosure to the revenue before you are notified of an audit, enquiry or an investigation.

If it was a innocent error under the category of insufficient care and the amount of tax computed on same is less that €3000 you may get away with no penalties.

If the tax is in excess of €3000 a penalty of 3% of the tax due would be charged for insufficient care.

An unprompted disclosure resulting from Gross Carelessness would result in a penalty of 5% and an unprompted disclosure resulting from deliberate default would attract a penalty of 10% of the tax due. All of the above would depend on full cooperation by you with the Revenue.

If, however, you have already been informed by the Revenue that they are initiating an audit, enquiry or investigation you can only make a prompted disclosure. If you make a prompted disclosure and co-operate fully with the Revenue the penalties applying here would be as follows :

Minimum 10% of tax due for insufficient care rising to 20% for gross carelessness and to 50% for deliberate default.

Without a prompted disclosure but with co-operation with the tax inspector the penalties would range from 15% (insufficient care) to 30% (gross carelessness) and up to 75% for deliberate default.

With no disclosure and no co-operation by you, penalties start at 20% for insufficient care rising to 40% for gross carelessness and to 100% for deliberate default.

Publication and prosecution

The advantage of making a qualifying disclosure are:

(1) penalties will be lower

(2) your name will not be published, and

(3) there will be no prosecution.

Publication

The Revenue Commissioners publish a list at the end of each quarter of the name, address and occupation of each taxpayer where a settlement has been made under audit or investigation with the following exclusions : You will not be published if

(1) you have made a qualifying disclosure or

(2) the total settlement including interest and penalties for all years is under €12700

(3) the penalties charged was under 15%

(4) cases where the 1993 amnesty applied.

Prosecution

The following are examples of offences which are most likely to be prosecuted :

(a) Use of forged or false documents,

(b) Systematic scheme to evade tax,

(c) False claims for repayment,

(d) Failure (as distinct from minor delays) in paying taxes,

(e) deliberate and serious omissions from tax returns,

(f) Use of offshore bank accounts to evade tax

(g) Insidious schemes of tax evasion

(h) Aiding and abetting the commission of a tax offence.

When the likelihood of prosecution is on the cards, the Revenue auditor must caution you – “You are not obliged to say anything unless you wish to do so, but whatever you say, will be taken down in writing and may be used in evidence”. You are not obliged to incriminate yourself. However, if you do not reply to the questioning of the Revenue Auditor this fact will be noted.

The advice of your solicitor should be sought before any replies are given or any statement made. If you opt to make a statement it should preferably be in your own writing. When completed it should be read over carefully before you sign same.

Each page of the statement has to be signed by both yourself and tax Revenue Auditor. In future, Revenue audits will be more onerous, more costly to complete and the tax penalties very severe.

The tax payer should aim to have good records and thus have no fear of Revenue audits.