KEY POINTS:
An IRD official who features in a movie about a Christchurch property developer's four-year GST battle gave "misleading" information to the Taxation Review Authority in another case.
Gibb Lee is still on the Inland Revenue Department's payroll, and is still working on the case of the Nelson man
the authority's decision relates to.
Like that of Dave Henderson - the businessman bankrupted by IRD after it rejected his claim for a $65,000 refund, and whose 206-week fight with the department is the subject of both a book, Be Very Afraid, and a movie, We're Here to Help - this is a story of convolution, intrigue and litigation.
Gaire Thompson, president of the Nelson Residents' Association, and his wife Nanette own several companies and a number of commercial properties.
In a nutshell, IRD thinks Thompson should be GST registered. He doesn't. The dispute has been ongoing for almost a decade now.
Thompson registered for GST in 1986. In 1997 he sold some residential land plus a tenanted house, and a year later was looking to transfer the rest of the properties he owned to one of his companies.
Advice at the time in an official IRD guide, and confirmed by both an accountant and tax consultant, indicated he could deregister for tax purposes if his annual income from the properties was less than $30,000. Thompson deregistered. He subsequently claimed a $90,000 GST refund.
Six months later he was asked to meet IRD inspector Gibb Lee from the department's Christchurch office.
He was told the information in the guide had been misinterpreted, he wasn't due a refund and in fact owed more than $20,000 plus penalties. Lee asked him to hand over his files.
Thompson says he did so because he naively thought he had to.
"Now I know I didn't have to and should have given him copies of specific papers... I still don't know whether I got everything back or not."
The dispute between Thompson and the department heated up.
"I was continually receiving letters saying I was re-registered and owed GST, then others to say I was deregistered," he says.
There was an argument over the date Lee sent out one critical document - a notice of response (NOR) - which went to the wrong address.
Eventually the case went to adjudication and, in 2004, the Taxation Review Authority.
The authority ruled in Thompson's favour. It also found Lee had given evidence he knew to be wrong regarding the date the NOR was sent out: "In cross-examination, the witness agreed that this evidence was wrong. Unhappily the inspector knew this when he gave the evidence on oath concerning this matter. Contrary to what he deposed, he further knew that the window [on a computer] he had relied on did not show when the document was printed," the authority said.
IRD appealed and the dispute went to the High Court.
The court found against Thompson but backed up the authority's views on Lee, describing his actions as "misleading". It pointed out "that though the authority did not say so in so many words that Mr Lee was untruthful" his carelessness had been found to be "understandably inexcusable".
After the authority's ruling, Thompson says he asked to see the files IRD had about his case. Astonishingly, in what he describes as a serious security breach, he was given papers that showed the names of two Nelson business people who were also in dispute with the department over the same GST issues that he had.
Another time, he says, Lee advised him one of his other companies hadn't paid enough GST. After going through bank statements and other documents, he discovered the tax inspector had added rent from another company to his figures.
"It turned out we had actually paid a bit too much GST. This is the guy who tried to mislead the court with his evidence... And here he is, still working for IRD and ... on my case.
"It is totally unacceptable. As far as I am concerned I am not registered, and I still haven't seen any real proof that I am, which is what they keep telling me. I don't know when I get a notice from them whether it's fact or fiction."
Property developer Dave Henderson described the culture at IRD as "wholly adversorial".
Lee was a major player in Henderson's dispute with the department. "In my opinion he had a closed mind, and in my case he was focused absolutely on finding and proving me wrong." In his book Henderson says: "In a telephone conversation with Mr Lee on the July 1, 1997, he acknowledged that he had acted in an adversorial way, and further acknowledged that he saw no problem in such an approach."
In the movie, the character Lesley Costello, played by John Leigh, was loosely based on Lee, Henderson said.
He said Lee regularly promised to deliver explanations, then failed to do so "to the point of denying that he had ever undertaken to give an explanation".
Henderson began taping his conversations with Lee and several other IRD staff.
"I was going crazy with the duplicity. Those tapes caught them out."
In the book, Henderson describes a situation over a mistaken doubling up in GST claims that his company had made. It had been dealt with by the IRD in Wellington in the early 1990s, but Lee and colleagues still pursued him over it. "During the entire four years of this audit [no] IRD officers involved had ever bothered to check with the IRD auditor in Welling-
ton... ," Henderson writes.
It was "just woeful" that Lee continued to work in the organisation, he said.
Henderson was finally given his $65,000 refund in 1999. He is now being audited again.
Thompson said seven years of battling the department had taken its toll, and he and his wife felt hounded. "My philosophy is that you have to sleep at night, you have to put it out of your mind and not let them get to you. If you do, you wouldn't be able to carry on. The pressure is terrible."
Thompson's solicitor, Grant Pearson, a specialist tax lawyer at Duncan Cotterill, was at a loss to understand how an official who had been pulled up by two judges could still be employed at IRD, and was still investigating the same taxpayer.
"Every day the courts place confidence in officials giving evidence. [They] must rely on those officials to be honest and to do their best to present the whole truth about what is before the court."
When asked why Lee was still employed as an inspector when both the authority and High Court found he had given wrong evidence, a spokeswoman for IRD said the allegations were historical and had been extensively investigated.
"It is quite wrong to suggest that Mr Lee gave false evidence or knowingly misled the TRA or the Court."
