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Home / 2008 / August 2008 / Revenue Deposit Investigation

On 23 May 2008 the Revenue Commissioners announced another special investigation. This time, the investigation deals with funds of €100,000 or more in aggregate held on deposit at any time from 1 January 2005 to 31 December 2007 which have not been disclosed for tax purposes.

ICAI has met with Revenue, under the auspices of TALC, to discuss the practical implications of the investigation. This article highlights some of the important aspects of the investigation.

What is the key point?

The key issue in this particular investigation is that it affects only those accounts which contain funds that have not been declared for tax, e.g. if property was sold but not declared for tax purposes and the funds placed on deposit; or if a person is engaged in cash sales which have not been declared for tax purposes and the funds placed on deposit.

If you have a client who had at least €100,000 on deposit at any time over the period from 1 January 2005 to 31 December 2007 and all the money had been declared for tax, then the message to get across is that they have nothing to worry about.

There may be deposit holders who earn deposit interest from which DIRT is withheld, but who do not submit a tax return. While those individuals should include such interest in their tax returns, Revenue have confirmed that this investigation is not about such individuals. The tax has been paid on the interest in the form of DIRT withheld; and while levies are still due on the interest, Revenue have stated that they are not concentrating on immaterial amounts owing for PRSI and levies. It is the undeclared tax on the original funds that is at issue in this particular investigation.

What has brought about this investigation?

Revenue have been given powers from new regulations, which require financial institutions to automatically send details of interest payments in excess of €635 in a year.

The reporting requirement is being phased in. - Phase I: Payments made by banks, buildings societies and the Post Office Savings Bank from which DIRT was deducted for the years 2005 and 2006 must be reported to Revenue by 15 September 2008; and payments in respect of 2007 must be reported by 31 October 2008. - Phase II: (includes Credit Unions) Payments to be reported for the year 2008 and subsequent years are, subject to some exceptions, all interest and other similar payments made by banks, buildings societies, the Post Office Savings Bank and credit unions and these must be made by 31 March in the following year. - In relation to credit union dividends, the reporting requirements will not operate for dividends paid in respect of periods ending before the end of 2008.

At the moment, the Revenue investigation relates to the tax years 2005, 2006 and 2007.

What do I need to do immediately?

Taxpayers who have tax issues relating to funds in deposit accounts with an aggregate balance of €100,000 or more must still come forward by 15 September 2008 with a notice of intention to make a disclosure. The criterion is the balance, and not that the entire amount necessarily is undeclared.

Revenue have placed the form of “Notice of Intention to make a Qualifying Disclosure” on their website.

The usual time limit for quantifying the tax shortfall and making the actual payment within the audit environment is 60 days, however ICAI made representations to Revenue on an extension of the timeframe for this investigation. Revenue have confirmed that taxpayers who had €100,000 or more in aggregate in the accounts (which included funds not previously declared for tax) at any time between 1 January 2005 and 31 December 2007 have until 15 January 2009 to submit payment, declaration and computation.

The actual form for submission of disclosure and amounts due (Form IRP1), which must be submitted by 15 January 2009 is also available from the Revenue website.

Calculating the liability

Following representations from ICAI, Revenue have confirmed that the roll-up year for this those taxpayers who qualify for this initiative is 1997/98. This means that income prior to that year may be treated as income of that year for the purpose of calculating interest and penalties due. The roll-up arrangement for penalties does not apply to settlements on tax default which occurred pre amnesty. No penalty mitigation is available; the standard penalty will be 100%. It will be necessary to apportion the penalty computation between pre-amnesty and post-amnesty tax default.

Revenue have placed spreadsheets on their website to assist taxpayers in calculating their income tax; CGT or VAT liabilities in relation to the special investigation into deposits.

Why should a taxpayer come forward?

The usual unprompted qualifying disclosure benefits should apply:

- The penalty will be substantially mitigated; - The taxpayer’s name and settlement will not be published; - An investigation, with a view to prosecution, will not be initiated.

It should be noted that the benefits outlined in this article will only apply where the taxpayer is in a position to make a qualifying disclosure. Persons not in a position to make a qualifying disclosure include those who are currently being audited by Revenue and those who were part of previous special investigations – offshore assets, SPIP etc.

However, if the taxpayer had made a disclosure under a previous enquiry and the non-declared funds has arisen since then, the taxpayer may avail of this initiative.

In order for a disclosure to be a “qualifying disclosure”, it must meet certain conditions as detailed in the Code of Practice for Revenue auditors.

- The disclosure must be made in writing and signed by or on behalf of the taxpayer.

- The disclosure must; ~ in the case of all disclosures, whether prompted or unprompted, state the amounts of all liabilities to tax, interest and penalties, as respects all taxheads and periods, which were liabilities previously undisclosed by reason of deliberate default by the taxpayer, and ~ in the case of a prompted disclosure, must also state the amounts of any liabilities previously undisclosed, for any reason other than deliberate default, which are liabilities to tax, interest and penalties within the scope of the proposed audit or audit enquiry (including related liabilities for taxheads or periods which are not within the initial scope of the audit or audit enquiry). ~ The disclosure must be accompanied by a payment of the total liability arising in respect of the tax, interest and penalties.

For further information on qualifying disclosure, see paragraph 10.1 of the Audit Code which deals with Qualifying Disclosures for Mitigation of Penalties.

Where can I get additional information?

Revenue have a dedicated area on their website which deals with this latest investigation. To access this area, click into the Revenue website (www.revenue.ie) and then click on the Undisclosed Large Funds in Irish Banks and Building Societies heading. Most of the commentary will be familiar to any accountant who has handled a special investigation case in the past. The key differences in essence are the later roll-up date for settlements, the extended time period to make a qualifying disclosure, and a slightly more liberal regime in terms of who is entitled to make a disclosure.

Revenue have placed Frequently Asked Questions (FAQs) in that area of their website, which deal with various aspects of the investigation. Revenue have indicated that the FAQs will be updated to reflect additional questions being asked.

ICAI will continue to deal with Revenue on any further queries on the Special Investigation on Deposits that members may have.

Following up on my earlier inquiry - I see how it works - the amount taxable at 20 is increased by the taxed interest

Thank you for a useful briefing. Checking back on my returns I was struck by the fact that when you report Taxed Interest on a Form 11, it is added to your Taxable Income - and thus taxed at he higher rate - but you get credit only for the retention tax at 20. This seems to imply that deposit income is ultimately taxed at he higher rate plus levy. Is thus the case?