In TDS 22/17, IRD look into the issue of deemed acceptance and liability for evasion shortfall penalty.
What is Deemed Acceptance of shortfall penalty?
Under the TAA 1994, S 138B states that a disputant cannot challenge an assessment if they have not proposed an adjustment within the response period. An assessment is disputed through the issue of a Notice of proposed Adjustment (NOPA). A NOPA is required to:
- Outline the taxpayers’ proposed adjustments
- Highlight the facts and law applicable to inform the Commissioner of the grounds for the proposed adjustment
- Include copies of relevant documents
If these requirements are not met, the taxpayer may be prohibited from challenging the assessments in a tax review authority.
Liability for Evasion Shortfall Penalty
A Shortfall penalty for evasion is imposed on a taxpayer when:
- The taxpayer's tax position has resulted in a tax shortfall. This is when less tax has been paid than the amount that should have been, paid had the correct tax position been taken.
- The payment of tax has been intentionally evaded. This is when the taxpayer is aware that their action/inaction will breach a tax obligation.
- Recklessness can also amount to evasion and can be proven where the taxpayer is aware and ignores that their tax obligation may not be met.
It is the Commissioners responsibility to show and prove a taxpayer is liable for a shortfall penalty. A conclusion of tax has been evaded is supported by the extent of non-compliance, dealings with IRD staff and tax accountants as well as any other relevant factors.
If a taxpayer wishes to attribute non-compliance to health or mental problems, medical evidence must be provided that proves that the person was incapable of taking action that would avoid the tax shortfall. For further advice regarding shortfall penalties cotact us below.
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