5. How does the IRD choose whom to investigate?
There are many reasons why an investigation starts. Sometimes the IRD received anonymous information. Sometimes it may be investigating another taxpayer and your name comes up in the course of that investigation. Sometimes it may consider that you are involved in a business that has tax risks. There is usually a legitimate reason for the investigation, though you may not know it.
6. What are the IRD’s powers?
The IRD probably has wider powers of investigation than the police. It is entitled to full and free access to business premises without warrant and may access private homes with a judicial warrant. It can require reasonable assistance in its investigations. There are, however, limitations on its powers and you should be legally represented to be sure that the IRD does not over-step its powers.
7. Can I or my client stop the IRD coming into premises unannounced?
You probably cannot prevent the IRD from coming onto your premises unless you are in a private home. In that case the IRD must have an access warrant before being able to proceed. Even if the IRD is permitted to be present you should insist on being given time to take legal advice before the IRD is allowed to review or to remove any records. If the IRD refuses to allow that time you may have to make an urgent application to the Court. The IRD is supposed to allow you to take reasonable steps to protect from disclosure any records that are privileged or protected.
8. What documents are privileged or protected from disclosure?
Documents that record communications between a lawyer and client will normally be privileged from disclosure. The scope of this privilege is often misunderstood and you should get advice about it. In addition tax advice documents from other tax advisors are protected from disclosure. There are complicated rules for claiming tax advice non disclosure which mean that you should get advice about that. In addition to these protections there are others such as that for documents involved in proceedings.
9. What if the IRD wants to interview me or my client?
An interview can be voluntary or compulsory. In the first the IRD will sometimes record the interview but in the second a taped record will always be made. A voluntary interview can be refused but it is often unwise to do that. A compulsory interview must be attended. The IRD can require that you answer questions on oath in a compulsory interview. You should be represented at any interview with IRD officers. If you are not, you can ask in a voluntary interview to break to take advice or ask to note a question for later reply once you have taken advice. In a compulsory interview this is more difficult and you should not really start such an interview without representation.
10. Do I have to tell the IRD things that will incriminate me?
There is no privilege against self incrimination in a tax investigation. If the IRD asks for information you must give it truthfully even if that leads to a tax liability. In some cases the IRD cannot use the information you give in an interview to prosecute you unless you later contradict yourself. In that case your interview can be used as evidence of perjury.
11. How should I or my client manage a tax investigation?
There are different ways of doing this but there are some basic rules. Keep a single point of contact with the IRD in your organisation. Don’t let IRD officers quiz your staff about matters. If the IRD has questions have them come through your point of contact, preferably in writing. Involve your professional advisers early, even if they remain behind the scenes. Keep track of the IRD’s requests for information. Keep a diary of deadlines. Keep copies of whatever is given to the IRD. Identify early potential problem areas and plan how to deal with them.
12. How does a tax investigation usually end?
If the IRD finds nothing, it will tell you. If it discovers what it considers is a default it will normally invite the taxpayer to complete an Agreed Adjustment form. This is a concession by the taxpayer that the IRD is right. If it is signed it will be followed by an assessment and the taxpayer will have no right to dispute that. Before any Agreed Adjustment is signed you ought to check that the adjustment is one that you will accept. You do not have to sign the Agreed Adjustment form if you disagree with the IRD’s view. In that case the IRD will normally issue a Notice of Proposed Adjustment.