Why evidence is crucial in the tax disputes process

Conor Kennedy, Head of Tax Strategy and Disputes, EY Law Ireland discusses the importance of providing the relevant evidence in resolving tax disputes.

In brief:

• In many cases, the Tax Appeal Commissioner are unable to reduce the assessment due to the insufficient evidence from the taxpayer.
• Taxpayers can provide a range of evidence including witness, documentary and in some cases introduce an earlier resolution. 

2022 was a busy year for the Tax Appeals Commission in which it resolved 2,600 tax disputes and published 166 written determinations. Unfortunately, in a significant number of the decided cases, the Appeal Commissioner was unable to reduce the assessment due to the failure of the taxpayer to provide sufficient evidence.

This article discusses the importance of gathering the warranted evidence, evidence types, and how it can assist the taxpayer in resolving tax disputes.

Witness Evidence

Direct witness evidence supports a taxpayer’s position as it provides the factual background of the events or circumstances which helps the Tax Appeals Commissioner understand the issue. This can come from the  taxpayer or any other person who has direct knowledge of the facts.

Expert witnesses usually provide analysis or opinions on the documentary evidence. For example, a financial expert may be called to provide an opinion on the accuracy or completeness of financial records, while a forensic expert may be called to authenticate digital or video evidence. Expert witnesses can help to clarify the significance or reliability of documentary evidence and provide additional support.

Therefore, the attendance of witnesses at a hearing is an important aspect of the appeal process as it ensures that all relevant information is presented and considered by the Tax Appeals Commissioner before a decision is made.

Documentary Evidence

Documentary evidence refers to any written or recorded material that supports a taxpayer’s ability to reduce a tax assessment. This evidence can be in the form of contracts, emails, letters, utility bills, financial records, photographs, or video recordings.

Unlike witness testimony, which may be subject to memory errors or biases, documentary evidence is typically more reliable and accurate. For example, a contract can provide clear and unambiguous evidence of the terms of an agreement, while a photograph can provide visual evidence of events that occurred. Documentary evidence is an essential component of the tax appeals process as it provides objective proof of events.

In many legal proceedings, documents are submitted as evidence and can be used to support or challenge witness testimony. Documents can provide objective and verifiable information that can help to establish the facts of a case, and they can be crucial in proving or disproving key points in the arguments presented by both sides.

Understanding the need for proof and solutions

It is an unfortunate consequence of the tax appeals system that many taxpayers who represent themselves or those represented by non-legal practitioners are unfamiliar with the requirement to produce witness and documentary evidence in order to reduce the tax assessment.

The legislation governing the tax appeals process provides an informal mechanism that enables taxpayers, their agents, the Revenue Commissioners, and the Appeal Commissioner to discuss the issue in dispute at a case management conference, which is seen as an early intervention. This procedure has been used effectively in the resolution of a significant number of ‘legacy case’ disputes by the Tax Appeals Commission whereby the problematic issues were identified, and guidance provided on the law with the relevant witness and documentary evidence. As a result, the taxpayer was  provided with the opportunity to gather all the required evidence before the hearing.

Therefore, it is possible that the continued use of the case management process would decrease the number of occasions that taxpayers failed to provide evidence and thereby increase the opportunity to reduce the assessment.