Following on from my blog of the 23rd January last warning of the dangers of any oversight in filing a CGT Return after making a gift of property, the importance of the matters covered in my blog were brought home to me in the recent High Court decision of Joseph Tobin v Eileen Foley (2011) IEHC432 http://www.courts.ie/__80256F2B00356A6B.nsf/0/85EE0F089EBA1C358025798A0052877B?Open. This case did not relate to a gift per se, but to the sale of a public house in Co Kerry back in 2003. Eileen Foley was the vendor and while she did make a payment to Revenue of less than €10,000 prior to the then tax deadline of the 31st January 2004, she failed over a sustained period to ever submit the full Tax Return and/or a proper CGT calculation. The Revenue pursued the matter doggedly over the years in correspondence but could never get full satisfaction from Ms Foley and ultimately the CGT computation that was submitted was shown to contain unsubstantiated tax deductions that did not stand up to scrutiny. For example, deductions for legal costs were found to be overstated, auctioneer’s fees to be overstated, if indeed there were any at all, and deductions claimed for refurbishment found to be not deductible within the meaning of the legislation. In 2010, the Revenue Commissioners assessed the sale of the pub as liable to CGT in the sum of €111,451 and offsetting at least two payments made by Ms Foley over the years, the sum outstanding was in the order of €107,000, a significant portion of the tax already paid having been swallowed up in interest.
From reading the judgement of Mr Justice Peart, it is clear that the taxation of the 2003 transaction had taken many twists and turns over the years. It had been before the Appeal Commissioners and then the Circuit Court, but on each occasion with the taxpayers ultimately losing her fight. In essence, her defence was that she was not experienced in business or tax affairs and that she relied on her husband (or former husband) to deal with her tax affairs as he was a former tax inspector.
The matter came before the Court as evidently the Revenue Commissioners had long lost patience with Ms Foley and while they already had judgment for the underlying tax and interest, the Revenue Commissioners were now demanding payment of a penalty of 100% of the outstanding tax liability under Section 1053 of the Taxes Consolidation Act 1997. The Revenue are allowed impose such a penalty where they can show that a Tax Return was filed negligently.
Mr Justice Peart held that despite this being a tax penalty, a criminal standard of proof was not required in order to find Ms Foley liable for the penalty, i.e. the Revenue were not obliged to prove beyond reasonable doubt that she had negligently made a Tax Return – they merely had to prove that on the balance of probabilities, she had negligently made an incorrect Tax Return. Quoting directly from Mr Justice Peart, he states “Negligence in the context of this legislation means that a person having a duty to make a Tax Return truthfully and honestly fails to make all appropriate enquiries in order to ensure that the details contained in the Return were complete, accurate and truthful. A person completing such a Return must be expected to make appropriate enquiries if she herself does not have the necessary facts and information in order to complete the Return. If she has to rely on others for information, she is under an obligation to ensure as far as reasonably possible that the information is correct and truthful”. Mr Justice Peart goes on to say that there was no evidence that Ms Foley had taken any steps whatsoever to satisfy herself that what was contained in the Return, or the information she gave at any later stage, was correct. Mr Justice Peart went on to state “If her evidence is to be accepted at all, it is to the effect that she blindly accepted what others had told her, and completed and signed the Return. That is negligence and not merely careless or an oversight”. As a consequence, the Court ordered that Ms Foley pay a penalty of in excess of €100,000 in addition to the underlying tax and interest. The case is an interesting read and it is clear evidence that the Revenue will doggedly pursue taxpayers that they consider are not playing by the rules.