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Tax Amnesty - Avoiding the Tax Trap!
The following is an excerpt of Chapter 1:EXTREME CAUTION IS ESSENTIAL
A. Revenue agency verbal agreements are not binding
The decision of CRA officials whether or not to grant a Tax Amnesty, or to waive or cancel criminal or civil penalties, is discretionary. The legal problem is that an official's verbal approval is not binding on the Agency. Such a decision can be overruled by a superior or there may be a change of mind. In such circumstances, it is difficult for an ordinary person, who considers his word to be his bond, to understand this is not the case for government. Regardless of lack of fairness, it has been decided by the courts that tax officials are not bound by verbal assurances.
The rule therefore is to be exceedingly wary when dealing with tax officials. They may smile a lot, be very nice and call you a "client" but they are not your friend. They are simply employees of a collection agency. Prudence dictates that extreme caution be exercised when dealing with such officials. Taxpayers who fail to follow this rule after dealing with that nice CRA person, come to see us after fiscally speaking, shooting themselves in the foot. It is much more difficult and sometimes impossible for us to carry out salvage operations after they have created such a mess.
B. Lawyer-client confidentiality
It is almost as bad to have your accountant or other non-lawyer advisor try to negotiate a Tax Amnesty on your behalf. Accountants are being heavily pressured by revenue authorities through growing use of third party penalties and information demands against them. They lack the legal protection of lawyer/client confidentiality and can be forced by the CRA to prematurely give names and testify against their clients.
Some accountants say it does not matter if the client's name is disclosed or not because they will still get a good deal. This is a foolish argument. In a situation where your opponent has full discretionary power, it is only common sense to keep your cards (and your name) close to your chest. Divulging information needlessly reduces bargaining power and can produce bad settlements. Also, if the tax authorities know your name, you cannot walk away should the deal be less than satisfactory.
Disclosing a client's name prematurely is also dangerous if tax litigation or a criminal tax evasion prosecution ensues. This could happen if the clients were already under investigation and amnesty is not granted. If an accountant alone is handling negotiations, he or she just became a witness for the prosecution.
A good negotiator reveals the taxpayer's name only after a binding written settlement is made and approved by the client, not a moment before. The bottom line is that, highly experienced tax lawyers, using the protection of lawyer-client confidentiality, can protect and maintain your privacy.
Smart accountants and advisors realize prudence dictates they work in strategic alliance with knowledgeable tax lawyers. In our practice, we often engage clients' own accountants to do the accounting work. Since they are employed by us, they come under our legal work product privilege. Savvy accountants are aware of this. Those who are less astute sometimes try to negotiate Tax Amnesties themselves and could wind up being sued by clients or pressured by Revenue agencies to divulge information. Accountants are vulnerable when dealing with tax authorities and may not be as insistent of their clients' rights for that very reason. The benefit of a tax lawyer and accountant working together on these problems is self-evident to most members of the two professions.