The Tax Disputes Process
13. What is a NOPA?
A Notice of Proposed Adjustment. This notice starts any formal tax dispute. It can be issued by the IRD or by a taxpayer. If the IRD issues it the taxpayer must respond within 2 months. If the taxpayer wishes to issue a NOPA it will normally have to do so within 4 months of an event such as the issue of an assessment by the IRD. The NOPA advises the changes to a tax position which the issuing party wants to make and the basis for those changes.
14. What is a NOR?
A Notice of Response. This replies to a NOPA and sets out the basis on which the opposing party rejects the NOPA.
15. Do I need legal help to file a NOPA or a NOR?
It is wise to at least have your lawyer look over the NOPA or NOR. There are some traps for the unwary. The content of the notices have to meet statutory standards. They have to follow a prescribed form. If your case is at all complicated you should obtain advice about these notices.
16. What is a SOP?
A Statement of Position. This is a very important document. It follows the issue by the IRD of a disclosure notice. This notice makes an SOP a binding document and limits the IRD and taxpayer in any later tax challenge to the facts, issues, arguments and evidence that is referred to in the SOPs that are exchanged.
17. Do I need legal help to prepare an SOP?
Yes. It is most unwise to try to prepare an SOP on your own. Because of the potential impact it has on the way you would be able to argue any subsequent tax challenge, you should be sure that the SOP has been prepared with solid input from the lawyer who will argue your tax case for you.
18. How soon should I get a lawyer involved if IRD issues a NOPA?
The sooner the better. Even if your lawyer only supervises the work that you or your accountant do to prepare NOPA or NOR, you will benefit by the input. You should definitely involve an experienced tax lawyer when the SOP stage has been reached.
19. How long do I have to respond to a NOPA?
Normally two months from the date the NOPA was issued. Be careful because this is not a full 2 calendar months. The time runs from the date of issue and expires on the day before the date 2 months later. So a NOPA issued on 20 June must be responded to by 19 August.
20. Does the IRD have to issue a NOPA?
In most cases yes. It does not have to do so if it issues a default assessment in the absence of a return. There are also other instances, such as when it considers that the revenue may be at risk by giving notice to a taxpayer, when it can move immediately to assess.
21. When would a taxpayer issue a NOPA?
A Taxpayer will normally issue a NOPA in either of two cases. The first is when the IRD has issued a default assessment in the absence of a return or another assessment without NOPA (see 20 above). To dispute a default assessment the Taxpayer must both file a return and an accompanying NOPA.
The second is when the taxpayer wishes to raise a potentially contentious matter with the IRD without running the risk of incurring penalties. A taxpayer may lodge a tax return taking a conservative position then issue the IRD with a NOPA proposing to adjust their filed tax position.
22. How long does the disputes process take?
Because the time frames for issuing and replying to notices are stipulated by legislation the process can be drawn out. This means that it can be very frustrating and costly. It is not unusual for tax disputes to be conducted over a period of 12 to 18 months, and sometimes more.
23. If the IRD calls a conference, do I have to take part?
No. You can ask for the conference to be dispensed with, though it is sometime beneficial to meet the IRD and hear what they have to say. That is less likely to be the case if you and your advisers have been dealing with the IRD for some time and your respective positions are clear and are unlikely to change.
24. How independent are the IRD adjudicators?
The adjudication unit is part of the IRD but it is independent from the investigations teams of the IRD. The adjudicators make their decisions only on the papers that are submitted to them, ie the SOP’s and related evidence. In an appreciable number of cases the adjudicators do not uphold, or only partially uphold, the position taken by the tax investigators. On matters of policy they apply the IRD position. When there is a question of credibility in the evidence they apply the conclusions of the investigators.
25. Does my dispute have to go to adjudication?
No. If the IRD is under time pressure it can skip adjudication and assess. In most cases it must have received and considered a taxpayer’s SOP before assessing but that does not require that the matter go to adjudication. It is possible for taxpayers to ask to by-pass adjudication. There are proposals for the law to change to allow an “opt out” by taxpayers. The IRD is reluctant to allow this to happen in any but the rare cases where it is clear that the parties are proceeding to litigation.
26. Is there an advantage to adjudication?
Adjudication gives you an opportunity to see a careful analysis of the IRD’s and your case. It can help to focus arguments and to better assess the prospects of success or failure in litigation.