Tax Debts

46. Does the IRD have to accept a payment proposal?

IRD has to consider a number of matters in deciding whether or not to accept a proposal. One is that it should try to recover the highest net return over time, but that is not paramount. It has to be balanced with other including the need to promote compliance with the tax regime. So even if a proposal offers more than the IRD would recover from bankruptcy or liquidation it can’t be forced to take it.

47. What does the IRD look for in a payment proposal?

There are no hard and fast rules because proposals must fit the circumstances, but it helps to be able to offer a substantial lump sum up front. Instalments should be the maximum reasonably achievable. The proposal should not be so long that there are risks of non performance over time. It should not involve continuing interest to the extent that the taxpayer can make no head way in reducing the debt.

48. What happens to penalties if I negotiate with the IRD

As long as you abide by the time frames for negotiation it is possible to suspend late payment penalties while negotiations are afoot. Interest continues to run.

49. Will the IRD write taxes off?

The IRD has power to cancel tax when it is consistent with it receiving the highest net return to do so. Practically speaking the IRD will explore all avenues to recover all of the tax that is due before looking at writing any off.

50. Will the IRD write off interest?

In most of its literature the IRD says that interest will not be remitted. It has power to cancel interest but seldom does so. Usually a deal which involves cancellation has core tax written off so that interest continues to be charged at normal rates on the balance of the tax.

51. If my company has a tax debt can the IRD chase me?

In some cases the IRD can make the director and shareholders of a defaulting company liable for the company’s tax. The liability can arise under general insolvency law, but there is also a tax law that says if a company has been subject to an arrangement that has the effect of leaving it unable to meet a foreseeable tax liability and that was purposefully done, a director can be personally liable subject to certain limited exceptions.

52. What will IRD do about the debt?

First the IRD will try to settle payment terms. If the IRD cannot settle the tax debt with you it will try to obtain judgement against you. It may follow this course in order to put pressure on you to settle a payment proposal. Judgment is a Court order that you owe the debt. Obtaining judgment normally involves a formal demand followed by an application to the Court when the demand is not satisfied. It is precursor to a bankruptcy or liquidation application.

53. Will the IRD automatically bankrupt me if I don’t pay?

That depends. If the IRD believes that it is best for your affairs to be managed by the Official Assignee (a liquidator in the case of a company) it will apply to bankrupt or liquidate a debtor. In some cases where it is clear that there are no assets to speak of and bankruptcy would severely limit your ability to work (and pay taxes) it may elect not to take this step. IRD does not normally take this step unless it considers it a last resort and it is often too late to do much to stop things at this stage. It is sometimes possible to delay matters but only if it is likely that an arrangement for payment of the debt can be reached.

54. Should I write to my MP about the IRD chasing me?

Often this is a waste of time. Most MP’s can do no more than request the IRD to reconsider your case and most get a polite response from the IRD telling them that your case is being dealt with entirely reasonably.

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