At Crawford Nelson we get questions from clients as per the following
“IRD have sent papers, what should I do”?
“IRD have sent prosecution documents, please help”
Currently IRD is very active in pursuing past income tax infractions, and this year we have been very busy helping our clients in court.
We have created a FAQ on IRD prosecutions to help you below and also at the bottom of the article are some case studies you may find interesting.
You can of course reach out to us at any time with any questions about tax here
IRD Prosecutions Frequently Asked Questions
1. What triggers an IRD tax prosecution in New Zealand?
IRD may initiate a criminal prosecution if they find significant discrepancies or non-compliance in tax affairs, including unpaid taxes, incorrect tax returns, falsifying tax returns or failure to file returns with the intention of not paying tax (tax evasion).
If someone does not to comply with their tax obligations or intentionally mis-represents their personal or business circumstances to pay less tax or get refunds they are not entitled to, then IRD may take prosecution actions.
Inland Revenue may also prosecute third parties for aiding, abetting another taxpayer to not pay tax. This is relevant where a company has not paid tax and IRD prosecute the director of the company or the person in the business responsible for the taxes.
2. I received a prosecution notice for unpaid taxes from a few years ago. What should I do first?
Immediately consult a tax lawyer or a professional tax advisor. They can help you understand the notice and advise on the best course of action.
3. Can I negotiate with IRD once I’ve received a prosecution notice?
Yes, you can negotiate, but it’s best to do so through a professional. They can help set up a payment plan or discuss other options with IRD.
4. What are the potential consequences of tax prosecution?
Consequences can include a conviction, fines, penalties, and in severe cases, imprisonment. Each case varies, so it’s important to seek legal advice.
5. How can I avoid tax prosecution in the future?
Ensure accurate and timely filing of tax returns and payment of tax, maintain good records, and consult with a tax professional regularly to stay compliant.
6. Is it possible to challenge the IRD’s decision on tax prosecution?
Yes, you can challenge their decision, but it requires a formal legal process. A tax lawyer can guide you on the feasibility and process of doing so.
7. What documentation should I prepare if I’m facing a tax prosecution?
Gather all relevant financial records, tax returns, and any communication with IRD. This documentation is crucial for your defence.
8. How long does a tax prosecution process take?
The duration varies depending on the complexity of the case and the legal processes involved. It can range from several months to a few years.
9. Can ignorance of tax laws be a defence in a prosecution case?
Generally, ignorance of the law is not considered a valid defence. However, the specific circumstances of your case may provide mitigating factors.
10. What are the chances of a successful outcome in a tax prosecution case?
This heavily depends on the specifics of your case. Success can mean different things, from reduced penalties to complete dismissal. A skilled tax lawyer can provide a more accurate assessment.
11. If I am convicted and found guilty, will this be publicised?
IRD may publicise convictions for tax offences based on public interest.
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Prosecution outcomes – 2023
1. A client with a serious gambling problem evaded $700,000 of taxes. The 18 charges over a 6-year period included tax evasion, and knowingly providing false or misleading information to Inland Revenue to get Working for Families payments.
On 8 August 2023, the client was sentenced in the Manukau District Court to 11 months of home detention 150 hours of community work and ordered to pay $100,000 in reparation.
The sentencing judge accepted the client has a serious gambling problem, said the fraud was premeditated and long, and told him he had only narrowly avoided prison.
The judge noted the home detention sentence meant the client could continue to work to support his family.
2. On 4 April 2023, the director of a labour supply business was sentenced to 11 months of community detention for failing to pay nearly $960,000 of employee PAYE to Inland Revenue.
By sentencing almost $800,000 had been repaid to Inland Revenue. When handing down the sentence for community detention, the sentencing judge acknowledged the client was responsible for her disabled son and elderly mother.
3. On 12 May 2023, a brothel owner was sentenced in the Wellington District Court to 11 months of home detention for evading income tax and GST totalling $663.513.83 – made up of $183,682.04 in income tax, $452,834.01 in GST, and $26,997.78 in Working for Families Tax Credits.
IRD used sources such as text messages, sex worker rosters and hand-written records of customers to work out what the average daily gross earnings of the business were.
The sentencing judge said there were cases where home detention had been available, and he had not allowed home detention.
In this case, the sentencing judge noted there were several factors that made home detention an appropriate option, including the damaging impact on his wife and young children, and the end of the business. The client was a very good employer in a business where good employers were uncommon. If the client was imprisoned it would have taken away a working environment that was fair and where the sex workers felt secure.
These are just a few from what was a busy 2023
Best wishes the team at Crawford Nelson.