Money: Recording the 'truth' can save costly hassles

By Denham Martin

The Inland Revenue Department recently issued a draft standard practice statement concerning the tape recording of its interviews.

Such interviews may be held with a taxpayer who is the subject of an audit or with third persons who may possess information relevant to an audit.

The statement advises that an interviewee must consent before an interview that is being conducted on a voluntary basis can be taped, but that all interviews conducted under section 19 of the Tax Administration Act 1994 must be taped, regardless of consent.

Setting aside the issue of whether the department's interviews can be said to be completely voluntary, there are several issues of which taxpayers need to be aware.

\EE It is not clear that Inland Revenue has the power to demand that interviews be taped, as there is no such express power in our legislation.

\EE Interviewees need to consider whether they should attend such interviews accompanied by a professional adviser. This will depend to a certain degree on whether the interviewee is the subject of the audit, the issues involved, and the amounts involved. These factors must be balanced against the fact that Inland Revenue can, of course, widen the scope of an audit following an interview.

A common concern for potential interviewees is that if they take an adviser to an interview, then Inland Revenue may construe they feel guilty or have something to hide.

An argument raised on occasion by Inland Revenue audit officers is that they are more likely to get the "truth" from taxpayers who have not discussed the pending interview with their lawyer or accountant. This assumes that officers will always conduct themselves objectively at an interview, and will always search for the "truth." This may be contrary to both human nature and the budget system audit officers work under.

\EE Interviewees must be aware of how their evidence may be used. It is likely that the recorded interview will be transcribed and from that, if considered necessary by Inland Revenue, an interviewee may be provided with a written document to sign under oath. Unfortunately, such transcribing is not always accurate and can record, for example, the mere acknowledgement of a question as an affirmative response to that question.

While you certainly should refuse to sign on oath a document that does not accurately record the relevant facts as known to you, you may find it intimidating to take such a stand. Therefore, it is better to have the facts recorded correctly from the start and to ensure that the important facts are recorded.

For example, an Inland Revenue officer asks you at an interview whether you had always intended to sell a piece of land you recently sold. You answer "yes" and a record is made of the question and your response. You do not tell the officer that you only intended to sell the land after building your home on it and after living there for a number of years. These unrecorded facts would be crucial in determining your correct tax position, and may carry less weight if disclosed at a later date. By simply answering "yes" you may have launched yourself into costly dispute resolution procedures.

Of course, there are a number of potential benefits for taxpayers in having such interviews taped. These include ensuring that your answers are recorded correctly, and ensuring some control on the behaviour and approach of the interviewer(s). However, always insist on a copy of the tape, your right to which is acknowledged in the statement.

In conclusion, anyone faced with a request for a tape-recorded interview should seek professional advice before attending that interview.

* Denham Martin is the principal of Denham Martin and Associates, lawyers specialising in advice on taxation and related matters.