Anonymously Negotiated Tax Settlements - The Tax Amnesty Solution

Anonymously Negotiated Tax Settlements - The Tax Amnesty Solution - 5.0 out of 5 based on 16 votes

( 16 Votes )

The following excerpt is from an article written by Paul DioGuardi Q.C. printed in the Winter 2003 issue of Offshore Finance Canada:

Revenue Canada (CRA) has a discretionary power to cancel or waive penalties and interest and to correct inaccurate or incomplete information that the taxpayer had previously provided. If the disclosure is accepted, there will be no civil penalty or criminal prosecution. The number of years subject to tax and the amount of interest may also be reduced. Substantial savings may be the result.

 

Our ability to deal with the CRA officials on a basis where the taxpayer remains anonymous until a satisfactory agreement is struck is crucial.

There are certain conditions that have to be met. Firstly, negotiations must be initiated at a time when the taxpayer is not under investigation by the CRA and no audit or other enforcement has been started. Secondly, after a successfully negotiated settlement, we as the taxpayer representative must give full and accurate information and complete documentation must be provided to the Tax Department. If the information is not complete or there are substantial errors it may be disqualified. Finally, the matter must cover a situation where a penalty is involved and include information that is at least one year past due. It can not be utilized to simply avoid late filing or installment penalties.

Clearly, the most prudent way to obtain a tax amnesty is on a NO NAME or anonymous basis. Because of our lawyer client privilege, information that is given to us by a client falls under the legal protection of lawyer client confidentiality and is not open to seizure by CRA officials. If negotiations with the CRA do not proceed satisfactorily, there is no need to proceed any further. As the client's name is not provided to the tax authorities, they never know the identity of the party involved.

Some people are penny wise and pound foolish. They will not pay to engage a professional and try to negotiate their own settlements. Typically, they provide their names and social insurance numbers to the CRA and give all the details of the tax discrepancies. Sometimes it works but there are some real horror stories. In one situation, an individual disclosed to CRA that no tax had been paid on offshore pension income he had received for some twenty years. As a result, he was taxed on the full twenty years' of income. As harsh as it may seem, once the tax is levied, it cannot be changed even by the CRA head office Fairness Committee. This poor man has been financially ruined because he tried to be his own lawyer. If we had been allowed to negotiate his case on an anonymous basis, only between five to six years' income might have been included in income subject to tax, not the full twenty. If there were mitigating circumstances, even this level of tax might have been reduced. As well, the amount of interest due could have been lowered substantially as part of any settlement package. The leg up we have is that the CRA will get nothing if they are not prepared to be reasonable. When we deal with the CRA, they only know the taxpayer as a number and we do not leave the bargaining table until a good financial arrangement is made. Since our central office is in Ottawa, it is possible for us to deal at head office CRA level with senior bureaucrats if local tax officials in other cities are uncooperative.

Some taxpayers hire an accountant to negotiate on their behalf. While this can work, accountants cannot offer the legal protection of lawyer client confidentiality. Also, accountants can be forced by the CRA not only to provide all their client's personal papers but also to testify against him/her in any criminal tax prosecution or civil tax case. If an accountant puts his clients in jeopardy because of a lack of such legal protection, it may be possible for the client to sue him/her for professional negligence.

PAUL DIOGUARDI, Queen's Counsel, was formerly tax counsel with Revenue Canada (CRA) and with the Tax Litigation Section of the Department of Justice. He has 50 years experience in Tax Law.


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