24 November 2015 CTF Roundtable - Answers from Assistant Commissioner

This is a transcript of questions posed to Anne-Marie Levesque, Assistant Commissioner, Appeals Branch, at the CTF 2015 Annual Conference, and her responses.

Q. 1 - Length of Objections Process

What steps are being taken to shorten the amount of time to assign an objection [to an appeals officer] and deal with it?

Answer

I’ve been asked this question before as to why it’s taking so long. So I guess good news, we are making progress, significant progress, on the assignment and the time that it takes to assign files, unfortunately we still have the very significant inventory of objections that have yet to assigned. Let me just talk to you a little bit about the process so it might give you an idea of how we’re trying to deal with this issue.

First of all, when a Notice of Objection comes in it’s either coming in to Sudbury or to Burnaby Fraser - we have two intake centres in the country. When it comes in it’s first looked at to see if it’s a valid objection - maybe it’s beyond the one year of 90 days, maybe a reassessment has been issued - so the first step is to determine whether the notice of objection is valid. If it’s beyond the 90 days, we send a letter to the taxpayer and ask them to make submissions for an extension time and if it is beyond the statutory limitation period, we just tell them "too bad" (but they can go to court if they wish).

Once the notice of objection is determined to be valid, then it has to be triaged. There are some objections that can be dealt with on the spot and (it’s probably not anything that you guys deal with but) there are significant numbers of the files that come in that could actually have been resolved at the assessment stage if the taxpayer just made a quick phone call - "I got my notice of assessment, there’s an obvious mistake." We have a process by which we can make those corrections to mistakes without having to file a notice of objection. I encourage you to talk to your taxpayers about that. But if we can’t resolve it through that phone call and it’s still a notice of objection coming in, it can be resolved quickly, we have fast track process for those cases. There are not many cases that can be resolved that way, but we try.

If it’s not through fast track then we assign a complexity-level to the notice of objection. It’s significantly related to the audit work that was done, so that we can assign it to the appropriate appeals officer in the country. Then it goes into our big basket of objections pending to be assigned by category of complexity and by the type of taxpayer it is - small and medium enterprises, or large corporations, or what not. So once the triage is done, it goes into a national inventory for all files except large files. You should know that about 60 percent of the volume of objections received in appeals deal with very low-complexity issues - simple tax credits, deductions that were missed or were denied on audit - and those low complexity objections are assigned and now resolved within 180 days. That’s a significant improvement to where we were a year ago because a year ago I would have said it takes 360 days. We’ve cut that time in half and we’re very proud of that.

Most of the files you probably deal with are low, medium complexity SME files. That takes a little bit longer to assign. We’re still looking at, we have assigned all of the files received in 2013 and before, that’s an achievement, thank you. Okay, I take my achievements where I can, but we may have a pushed on SME objections. You probably have been contacted by some appeals officers more recently, I’d say within the last six to eight months with your files having been assigned quicker than you expected. That will continue because we’re trying to assign and resolve all of the small and medium enterprise objections within 180 days from the receipt of the objection in CRA. That’s six months, that is a significant improvement. So you will get a call from an appeals officer who’s pressed for time because we are pushing them and the officer will ask you to react to their request for information or submissions very quickly.

I apologize ahead of time for that because some of you have been waiting for a long time for you file to be assigned, and once it’s assigned, we’re calling you up and saying, "okay now time to move, but please move quickly." So I apologize but it’s the only way we’re going to get through the backlog. And we have had a bit more money to invest in objections in the past few years but that money’s going to run out so it’s why we’re making a big push to resolve these objections. So thank you for your understanding and your cooperation.

For high-complexity files, large files, no change. It takes forever.

Q. 2 - Audit Consistency

What sort of policies do you have to ensure a consistent approach when doing [audit] projects?

Answer

All right, so we have different types of projects. We have what we call local projects, which are regionally based, and then we have national projects that are very popular across the country. Both types of projects are managed in a similar way, in that we assign a lead officer in the country who is going to be managing the local or the national projects. That officer will determine the CRA position in respect of all these files to ensure that we have a consistent base in which we will be completing the analysis of the objection.

There’s always some special circumstance files that need to be addressed a little bit differently and we can still do that even though we try to maintain consistency across all files in a similar project. We have had some projects with respect to donation tax shelters. They are not all the same, and that’s an important element because we have started to deal with those donation tax shelter project’s files in the past two years. We’ve actually reviewed over 100,000 objections. Not all of them have been resolved, as you can imagine. Some of the projects are being resolved through an offer of settlement - not all of them because not all have the same fact-pattern.

Q. 3 - Concurrent Appeals and Relief Requests

How are relief issues dealt with at the same time that you're doing an appeal? How does the interaction work, in terms of the appeals people and the rest of the CRA?

Answer

It used to be that we would not consider the relief request for interest and penalties until all of the appeal rights have expired, whether on objection or before a court. We've changed that practice in the past year or so, where, if you have an objection, and you want to have relief considered at the same time as your objection, the appeals officer has the duty to consider the interest or penalty relief at the same time that they are considering the objection, or the litigation for that matter.

However, there’s a bit of a snag in terms of how we can actually officially respond to that relief request. As you know, if we issue a reassessment pursuant to a relief request, that reassessment cannot be appealed to the Tax Court - it can only be subject to judicial review. So we’re careful not to issue a reassessment on relief that would invalidate your objection to start with, and then your recourse would be to judicial review. So we issue out a decision letter. The appeals officer can give you a decision letter but we won’t reassess on the relief until the whole matter of the objection is considered and resolved.

A host remarked:

Yeah, actually I would just make a quick point too. The discussion I had last week, it’s a good idea when you’re appealing with the objections to talk to the appeals officer about the fairness part too because frankly, she seemed kind of sympathetic to the case in terms of what we would be trying to get relief on and was making a lot of notes that’ll get passed on to the next step. So probably a good idea because you might have, you know, someone that can help you in the appeals area before it gets passed on.

So just a last point, if your relief request is just based on financial hardship, that needs to wait until all of your appeal rights are resolved because the matter could be overturned on appeal.

Q. 4 - Involvement of the Auditor in the Appeals Process

Are there circumstances where an appeals officer would refer an objection back to the auditor?

Answer

Yes, there are.

Let me preface this by something I’ve been hearing in the past few years that has concerned not only me but Richard Montroy [Assistant Commissioner, Compliance Program Branch], who’s the head of the audit branch. I often hear some taxpayers or representatives say that they hold back evidence for the appeals process. They’re under the belief that they need to have new facts to have an appeals officer consider their objection fully.

That’s not true. An objections officer has the duty to review the reassessment. Whether you provide new facts or new arguments is irrelevant. The appeals officer must first and foremost consider that the reassessment is well based in the facts and in law.

So don’t hold back on any evidence at the audit level because there’s a new practice that’s going to start January 1^st. If the auditor has requested information or documents from you and you choose not to share that information with the auditor, when you will want to share it with the appeals officer, the appeals officer will now be obligated to send that new information back to Audit. It used to be that the appeals officer had the discretion to send matters back to the auditor - now it will be mandatory where the auditor has requested documents and information, the taxpayer has failed to provide that information, and instead provides it at objections - the matter will just be sent back to Audit for consideration.

Now the auditor will make a recommendation to the appeals officer based on the new evidence. If you’re lucky, maybe the auditor would say, "I overturn my previous decision and reassessment." If not, it still goes back to the appeals officer and the appeals officer will have to make his own independent decision on the whole file. It will just add a lot of time for appeals to reconsider your position if you hold back information. We will let you know when we do so because at Appeals we tell you - we must tell you - when we communicate with the auditor on your file.

Q. 5 - Auditor Reports

There are times when, in the course of an audit, an auditor has a number of reports that could be prepared - e.g. an evaluation report, a transfer pricing report, a penalty report.

Often there's a concern that, when you go to file your objection, the appeals officer, having these reports in-hand, isn't going to go behind those reports. And if the report is a critical element in the actual reassessement, it seems to be almost pointless to go through the objections process in a stuation like that rather than a fast-track appeal to the Tax Court. What are your veiws on those types of situations?

Answer

The theory is that the appeals officer must do a full review of the file. There is nothing preventing the appeals officer from disagreeing with a report that was prepared on audit - whether it's an expert report made by a valuator, or a penalty report by an auditor.

An appeals officer must review the report to determine whether the report has strength - determine whether there are weaknesses in the report. The appeals officer has the right to request a new evaluation or a new expert on the file. On big transfer-pricing cases it doesn't happen a lot - that an appeals officer will, on his own, request a new expert report. But if the appeals officer finds that he or she has concerns with that expert report, he's not bound by that report. If it's a big enough case, we'll ask the appeals officer to refer the matter back to the headquarters office of appeals, so that, in Headquarters, we can have a look as to whether we need to order a totally new report or additional elements to the report.

Now, it does help a lot, if you have submissions to make on that report. As you know, you're entitled to the work-product of the auditor. So, the auditor relied on an expert's report to make the reassessment. You can ask the appeals officer to share that report with you. And from there, you can make your own submissions on the weaknesses (or stengths) of the report.

All that said, we're not bound by that, and we've had quite a number of cases where the appeals officer has disagreed with a valuation, and asked for another valuation, or overturned the reassessment. So, I say, why don't you take a chance at Appeals? Because you might get a pretty good result without having to go to court.

Follow-up question - does the answer change if there's a GAAR Committee decision to back the reassessment?

With all due respect to my colleagues on the GAAR Committee, Appeals is not bound by a decision of the GAAR Committee either, and we have overturned reassesments notwithstanding a GAAR Committee decision to uphold the GAAR.

Now, Appeals can also raise the GAAR if Audit didn't raise it, and we don't go through the GAAR Committee - we do it on our own. So it goes both ways.

So I encourage you that, even if there's a GAAR assessment on your file, that it's worth making your submissions at Appeals, because we will look at your submissions and we may overturn the decision of the GAAR Committee.