AUDIT/INVESTIGATION ISSUES IN THE ADMINISTRATION OF ESTATES JULIE BURKE STEP AGM - 18 October 2011 J.M. Burke Tax Solicitors Ashley House, Morehampton Road, Donnybrook, Dublin 4. Telephone: 01-4404420 jburke@jmburketaxsolicitors.com

PRE-DEATH TAX LIABILITIES OF THE DECEASED The personal representatives become responsible for tax affairs of a deceased person who was a chargeable person for Irish tax purposes at date of death - section 1047 & 1048 TCA 1997 Note: Ensure that there are no non-Irish tax liabilities where relevant non-Irish assets were held The pre-death tax affairs of the deceased may become the subject of an audit or an investigation for Revenue purposes The personal representatives must respond to Revenue queries and establish if there is an underpaid liability

PRE-DEATH TAX LIABILITIES OF THE DECEASED If there is a liability to underpaid tax in respect of a pre-death period it must be established and declared on Form CA24 (if known) – if discovered subsequently, a corrective Form CA24 must be filed. It is important to ensure that the deceased’s pre-death tax filings are made and confirmation obtained from the tax agent of the deceased that the deceased was tax compliant

PRE-DEATH TAX LIABILITIES OF THE DECEASED - PENALTIES The personal representatives must also discharge penalties in addition to underpaid tax and interest in accordance with Section 1077D TCA1997: Where a settlement that includes a penalty element has been agreed in writing between Revenue and a deceased taxpayer prior to his/her death and that penalty remains unpaid as at the date of death, Revenue will continue to proceed against the personal representatives of the deceased for the recovery of that unpaid penalty. Where the taxpayer dies before a settlement has been agreed with Revenue, Revenue will not seek recovery of any penalty element from the deceased's personal representatives – in these cases there will be no publication of the deceased’s name on the list of tax defaulters cases under Section 1086 TCA 1997.

PAYMENT OF PRE-DEATH TAX LIABILITIES OF THE DECEASED Payment of underpaid tax, interest and penalties (where applicable) to be made from estate - see Order of application of assets as set out in Part I and Part II of Schedule I of the Succession Act 1965

PRE-DEATH TAX LIABILITIES– AUDIT/INVESTIGATION Revenue request regarding reconciliation of assets listed on CA24 with tax returns filed Examples of queries raised: State dates of acquisition of various stocks/shares/life policies and how same was financed Submit bank statements/deposit books for all bank/post office/building society accounts held Enquiry letters issued following information obtained by Revenue as a result of High Court orders, e.g., transactions relating to offshore bank account/single premium life policies

POST-DEATH TAX LIABILITIES OF THE ESTATE Requirement by executors/administrators to file returns - section 1047 TCA 1997 Income tax & CGT where where liability to Irish taxation exists, i.e., Irish source income and gains generated during the period between date of death and date of ascertainment of residue/distribution of the assets

POST-DEATH TAX LIABILITIES OF THE ESTATE Income Tax: The personal representative is liable to pay Income Tax at the standard rate on income earned during the administration period. There is no entitlement to personal credits or to any of the reliefs otherwise available to individual taxpayers Revenue may concessionally agree to treat the beneficiary as succeeding to the inheritance from the date of death – no entitlement to this concession CGT: If the personal representative sells any property during the administration period, there may be a liability to Capital Gains Tax - but only to the extent that the value of the property in question has increased between the date of death and the date of sale.

POST-DEATH TAX LIABILITIES OF THE ESTATE CAT for non-residents or where solicitor is agent for filing of CAT returns for Irish residents Potential exposure to underpaid tax, interest and penalties (as not the liability of the deceased) Real-time audit of returns

CAT - SECONDARY LIABILITY FOR NON-RESIDENTS Secondary liability - abolished with retrospective effect from the date of passing of Finance Act 2010 Exception: Non-resident cases - Section 45AA CATCA03 provides for secondary liability for a solicitor acting in a non resident case. A letter can be sent to Revenue (Dublin City Centre District processes CAT returns for non-residents) indicating that the assets that are passing to the non-resident are to be distributed, and that the personal representative or solicitor is satisfied that any relevant pay and file obligations have been met.

CAT - SECONDARY LIABILITY FOR NON-RESIDENTS If Revenue replies within one month stating that the file may be audited then the assets relating to that beneficiary’s benefit should be retained, pending the completion of Revenue’s audit or enquiries, and receipt of a written confirmation that Revenue are satisfied that any CAT due has been paid.

SECONDARY LIABILITY FOR NON-RESIDENTS No response from Revenue: once the one month period has expired the benefit can be paid out to the non-resident beneficiary. Revenue are not precluded from carrying out an audit within the usual statutory time limits against the non-resident beneficiary. However where the non-resident beneficiary is selected for audit, the non-resident beneficiary will be responsible for all aspects of the audit process.

SECONDARY LIABILITY FOR NON-RESIDENTS In the event of an additional liability being identified where the resident personal representative or the solicitor under Section 48(10) acted honestly and in good faith and did not deliberately fail to comply with his or her obligations, then Revenue will only seek to enforce liability on the resident personal representative/solicitor under Section 48(10) to the extent of any assets remaining under his/her control. Any excess liability will be sought by Revenue directly from the non-resident beneficiary and liability for the excess liability will not be enforced against the resident personal representative/solicitor under Section 48(10).

FINANCE ACT (No. 2) 2008 Qualifying Disclosure This is a disclosure that Revenue are satisfied is a disclosure of complete information in relation to, and full particulars of, all matters occasioning a liability to tax that gives rise to a penalty. A qualifying disclosure may be unprompted or prompted.

FINANCE ACT (No. 2) 2008 Unprompted Qualifying Disclosure This means a qualifying disclosure that Revenue are satisfied has been voluntarily furnished to them – before an investigation or inquiry had been started by them or by a Revenue officer into any matter occasioning a liability to tax of that person. Prompted Qualifying Disclosure This is a disclosure which is made to Revenue in the period between: the date on which a person is notified by Revenue of the date on which an investigation or inquiry into any matter occasioning a liability to tax of that person will start, and the date that the investigation or inquiry starts.

MITIGATION OF TAX GEARED PENALTIES UNDER THE FINANCE ACT (No MITIGATION OF TAX GEARED PENALTIES UNDER THE FINANCE ACT (No.2) 2008 FOR A 1ST QUALIFYING DISCLOSURE: Note: This chart is separate and distinct from fixed penalties Category of Default Penalty before Mitigation Co-operation Only Co-operation Only and Prompted Qualifying Disclosure Co-operation Only and Unprompted Qualifying Disclosure Deliberate Behaviour 100% 75% 50% 10% Careless Behaviour with “significant consequences” 40% 30% 20% 5% Careless Behaviour 15% 3%

BENEFITS OF MAKING A QUALIFYING DISCLOSURE The primary benefits of making a qualifying disclosure under the 2010 Code of Practice the Finance Act (No.2) 2008 are as follows: mitigation of penalties, assurance in respect of non-prosecution, and non-publication of the taxpayer’s name where a qualifying disclosure is made.