The IRD cannot normally assess you without first giving you notice of a proposed tax adjustment (a “NOPA”). This starts a complicated statutory tax disputes process. If you don’t agree with the NOPA you must respond to it within a strict time frame. If you miss that, you can lose all your rights to dispute what the IRD wants to do. Later stages of the tax disputes process require you to provide the IRD with a binding statement of position (“SOP”) which locks you into a position in subsequent litigation. If you get that wrong, your case can be severely compromised.
A NOPA is the usual first step in the formal tax disputes resolution process. This process is like a ritual dance between the IRD and taxpayers. The process is complicated, time consuming and dangerous. If you do not provide the required notices within the limited timeframes that are specified under the disputes process you can lose your dispute rights altogether and be deemed to be liable for taxes which you may consider are entirely wrong.
The IRD is not usually able to simply issue an assessment. If it does, things are serious and the taxpayer who receives the assessment must commence the dispute procedure by sending a NOPA to the IRD within 4 months or lose all rights of dispute. It is much more usual for the IRD to issue a NOPA as a first stage in resolving a dispute.
The NOPA must contain information about the tax adjustments the IRD wants to make, the facts on which it relies and its legal arguments. Once this is received a taxpayer has 2 months to provide the IRD with a Notice of Response (“NOR”). If you miss the deadline you lose your dispute rights unless extraordinary circumstances exist. The NOR must state how you disagree with the IRD’s NOPA and must follow a prescribed form and content.
The Court of Appeal has recently confirmed that the Commissioner cannot unilaterally decide that your NOPA or NOR does not comply with the law. Instead you must act as if it does and commence challenge proceedings against any assessment the Commissioner issues. The status of your notice will be resolved as a preliminary issue in those proceedings. See our case note on Alam and Begum v CIR.
The NOPA and NOR are not binding documents but they set the scene for the next stage in the process. Normally a conference will take place to discuss the parties’ differences and if that does not resolve the matter the IRD will issue a disclosure notice and a binding Statement of Position (“SOP”). The taxpayer has another 2 months from the issue of the IRD’s SOP to respond with its own.
SOP’s are extremely important. They must contain all of the facts, issues and legal arguments you would want to rely on in any later tax challenge before the Courts. With some limited exceptions, if facts, issues and arguments cannot be found in the SOP’s from either party, they cannot be raised at a later stage in proceedings. This makes it very important to prepare these documents with legal input from the person who will argue the case for you if it is not resolved.
If the IRD does not accept your SOP it may refer the matter to an independent adjudication section within the IRD. If this is done the adjudicators will decide if they accept the IRD’s or the taxpayer’s position. If they accept the IRD’s position they will issue an assessment which conforms to their decision.
Alternatively if the IRD is faced with a possible time bar, it may skip the adjudication stage. The IRD is entitled to assess if it has received and considered the taxpayer’s SOP without the matter being referred to adjudication.
Geoff Clews is an expert on all the stages of the tax disputes process and teaches a Masters level course on the topic at the University of Auckland.
For answers to frequently asked questions about the tax disputes process, click here.
To contact us for help in dealing with the disputes process and preparing NOPA’s, NOR’s or SOP’s, click here.