IRD can reassess taxpayers

By DENHAM MARTIN

If I have received a number of assessment statements from Inland Revenue for the same tax year, can I take my pick as to which one I pay?

J.D, Milford The short answer to your question is no. Inland Revenue is obliged to assess taxpayers for the correct amount of tax, and consequently the department has the power to reassess taxpayers in order to achieve that objective.

The Court of Appeal has recently confirmed that successive notices of assessment should be read together so as to constitute a single assessment of a taxpayer, albeit one that has changed over time.

Subject to what is stated below, the last notice of assessment that you have received is therefore the one you must pay.

Inland Revenue's power to assess and reassess taxpayers is not, however, an unfettered one - the following restrictions exist:

* Inland Revenue must make a genuine attempt to assess the correct amount of tax payable and cannot act arbitrarily.

Nevertheless, Inland Revenue can issue a default assessment where the taxpayer has failed to provide sufficient information for the department to be as precise as it would like.

* Inland Revenue cannot amend an assessment so as to increase the amount of tax payable once the statutory time bar has expired. The time bar is four years from the end of the income year in which the original notice of assessment was issued (before April 1,1997) or the tax return was filed (post-April 1, 1997).

The time bar restriction is subject to the qualification that the taxpayer must have made proper disclosure of the matter that the assessment would be amended for.

* Inland Revenue cannot amend an assessment where it relates to a matter that is subject to legal proceedings with the taxpayer, including, as a general rule, a matter being dealt with under the disputes regime. Any settlement of such proceedings or any decision of the Taxation Review Authority or a court in those proceedings also binds Inland Revenue.

Note that this applies only to the matter in dispute - Inland Revenue has scope to amend an assessment on grounds unrelated to those subject to the proceedings.

If the last notice assessment you received can be successfully challenged on any of the above grounds then the assessment would revert to the immediately preceding notice of assessment and so on.

If you have received a notice of assessment that has been validly issued then you can still challenge it, if you consider Inland Revenue to be incorrect as a matter of fact or of law, by invoking the disputes regime.

You should be aware that both Inland Revenue and taxpayers can invoke the disputes regime through the notice of proposed adjustment procedure.

Be warned, however, that there are strict timeframes and the failure to comply with those timeframes can result in the deemed acceptance of the proposed adjustments, which removes the basis to challenge the resulting assessment or reassessment.

Responding to notices of proposed adjustment and assessments from Inland Revenue is therefore a matter that should be taken seriously by taxpayers.

* Denham Martin is the principal of Denham Martin and Associates, lawyers specialising in advice on taxation and related matters.