Tax agents regularly handle tax audits. Clients expect them (and only them) to deal with the ATO. Some clients expect tax agents to make the problem go away and, invariably, at no cost.
All tax agents know that every tax audit requires the taxpayer to provide documents as and when requested by the ATO. Sometimes there are documents that aren’t privileged and could be provided, but somehow aren’t. Sometimes a tax agent provides information that isn’t accurate or is misleading in an attempt to minimise a negative outcome or limit the scope of the ATO’s enquiries.
This recently happened to one of our clients who is a tax agent and had reached the end of his tether. The audit was prolonged, and he had countless hours of unbillable WIP. Put simply, he wanted out, but the ATO still wanted to continue.
Penalties for providing inaccurate or misleading information
Put to one side the serious offences contained in a myriad of laws including the Taxation Administration Act (ss8K and 8N) or the Criminal Code Act (eg. an offence of dishonestly influencing a public official carries a 10-year term of imprisonment!), there’s a section in the Tax Agent Services Act which also carries a sting in the tail.
Section 50-20 says that a tax agent must not prepare or certify a statement that they know is to be made to the ATO where the statement is false, incorrect or misleading in a material particular respect, or omits any matter without which the statement is misleading in a material respect. The penalty for a body corporate is 1250 penalty units, or around $262,500 for each proven offence. In other words, over the course of an audit, it could easily wipe out any tax agent practice, but even simpler, you can be assured your tax agent registration will be terminated. Guaranteed.
What should you do?
So here’s the moral of the story; if you’re a tax agent and assist a client in a tax audit you need to be focused on what you say and do to the ATO. Don’t just simply pass on documents without carefully reviewing them and their effect. Make sure every question you respond to is answered carefully and to the greatest extent possible; and test everything your client tells you, don’t just accept it. And don’t cut corners.
What if a client tries to persuade you to provide less or inaccurately answer a question to the ATO to assist them? Simple. Obtain advice. Or let them find another tax agent!
If you have any questions about tax audits or anything else relevant to practising as a tax agent, please contact a member of Thomson Geer’s Tax Advocacy team.