Tax Audit: Know the Right Steps to Take!

What Triggers a Tax Audit?

The use of artificial intelligence allows the administration to analyze mass data by cross-referencing information transmitted to it (land registration services, registration centers, banks, collaborative platforms, etc.) in order to reveal anomalies. Any change in taxpayers’ situations or new events are likely to attract the attention of the services: suspicious bank movements, holding an account in a country with preferential taxation, holding stakes in foreign holdings, inheritances, donations, or the late filing of declarations.

What Steps Should Be Taken?

Tip #1: Keep supporting documents – Keeping the documents used for preparing declarations (e.g., work invoices, donation certificates, etc.) for the entire limitation period (3 years for income tax, with exceptions) will prevent you from being caught off guard in case of an audit.

Tip #2: Seek advice beforehand – Good advice can sometimes prevent a problematic tax audit. Thus, preventive advice, provided if necessary by a tax lawyer, can help secure your situation to be beyond reproach in case of an audit.

Tip #3: Don’t bury your head in the sand – Requests from the administration present varying degrees of seriousness. However, whether it is an amicable reminder, a “request for information” (form 751 or 754), a “request for clarification or justification” (form 2172), or a “proposed reassessment” (form 2120), it is strongly advised to respond within the allotted time, which is thirty days in most cases, and to do so clearly and precisely. Indeed, in case of a late or insufficient response, you risk in some cases being considered as having accepted the reassessment or being taxed according to an ex officio assessment procedure, which entails the reversal of the burden of proof to the detriment of the taxpayer.

Tip #4: Address the administration as a tax professional – The auditor’s role is to enforce tax law. Discussions should therefore focus on the applicable legal rule and avoid dwelling on non-tax matters. Of course, you may share elements related to your personal situation with the auditor, but it is important to remember that your interlocutor is first and foremost a tax professional.

Tip #5: Ensure the administration respects the procedure – Procedural rules provide guarantees to the taxpayer. Compliance with these guarantees is ensured by a formalism that the tax administration is required to adhere to. For example, a proposed reassessment must be notified within a period known as the “reassessment period,” include a certain number of mandatory details (e.g., taxes and years concerned, financial consequences, etc.), and be justified. As tax procedure is complex, recourse to a tax lawyer is recommended to effectively defend one’s rights and guarantees.

FOCUS

Certain breaches of tax obligations are subject to criminal penalties. The tax administration is thus required to report to the public prosecutor all facts it has examined during an audit that resulted in tax reassessments exceeding €100,000, as well as the application of tax penalties equal to 100% or 80%, or 40% in case of repetition.

Article published in La Dépêche du Midi,