Money: Rights for taxpayers during IRD audit

By Denham Martin

Taxwise


I read your article in Taxwise (Weekend Business Herald, January 29) on the tape-recording of interviews by Inland Revenue. I note that you advise an interviewee should consider being accompanied by a professional adviser. Must the IRD let me bring along one, and if so can the IRD exclude a particular adviser? Also, how many times can I be interviewed on the same matter? Can I make the IRD reimburse my expenses?

H.A, New Lynn Your first question relates to whether or not you are entitled to be accompanied by a professional adviser during an Inland Revenue audit. The relevant legislation is silent on this point. However, as a matter of policy, Inland Revenue says that a taxpayer may have an agent accompany them at an interview, or at any other time during an audit.

In an Australian case, a taxpayer was prosecuted when he did not attend an interview because his accountant was unable to accompany him. The judge in the proceedings noted that the Australian Tax Office had been unreasonable in not changing the date to one where the adviser could attend.

Given that Inland Revenue takes a wide view of who may accompany a taxpayer at an interview there would need to be strong grounds for excluding a taxpayer's adviser. This may be where the taxpayer's agent, for example, has physically threatened the Inland Revenue officer.

You ask whether there is a limit to the number of times you can be interviewed. There is no number in the legislation limiting the number of interviews; the limit is what is reasonable in the circumstances. The legislation requires that questions posed in an interview have a proper purpose.

Therefore, where the same questions are asked at successive interviews, repetition could suggest an improper purpose. Generally, the number of interviews will depend largely on the complexity of the issue(s) and whether or not Inland Revenue uncovers further issues during the audit process.

Where an interviewee feels that he or she has been subjected to an unwarranted number of interviews it is open to the taxpayer to lodge a complaint with Inland Revenue. Its guidelines recommend that the interviewee should first complain to the officer concerned, and then, if necessary, lodge a complaint with the interviewer's superior.

Judicial review of Inland Revenue's application of the income tax legislation represents a final option to the taxpayer.

The issue of reimbursement is important as Inland Revenue interviews can be costly in time involved and expenses incurred, such as travel costs. A taxpayer required to attend an interview can claim travelling and loss of time costs.

Costs are determined as the commissioner considers reasonable. A taxpayer cannot claim a tax deduction for his or her time spent preparing for and attending an interview. Other expenses incurred may or may not be deductible.

All taxpayers should be aware that in the event that they become the subject of an Inland Revenue audit, they have rights, obligations and avenues for the redress of grievances that arise throughout the process.

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