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Clause

Review and audit support

The clause that says who helps if the tax authority asks questions, what the help covers, for how long and at what cost. Help is not the same as paying any tax that becomes due.

This page explains a common clause in general terms. It is not legal advice, and contract law differs between countries. Ask a lawyer to review your own engagement letter.

Sample clause

Written for this guide, not from any real contract

1 If the tax authority raises an enquiry into the Claim, 2 we will prepare responses to its written questions and attend meetings with it on the Client's behalf, 3 at no additional charge, 4 for as long as the tax authority may enquire into the Claim. 5 Nothing in this clause makes us liable for any tax, interest or penalty assessed on the Client.

  1. The trigger. Some letters use narrower words, such as a formal audit only, so that a simple query is not covered.
  2. The scope: correspondence and meetings. Check whether revised calculations and work on new information are included.
  3. The price. "At no additional charge" is one answer; a stated hourly rate with an estimate is another. "Available" is not an answer.
  4. How long. Here it lasts for the whole period in which a review can arrive, and does not end with the engagement.
  5. What support does not do. Help with the review is not a promise to pay any tax, interest or penalty.

What it means in plain English

A tax authority can review a claim after it has been paid, within time limits set by law, so this clause can matter years after the engagement seems to be over.1Source 1A tax authority can review a claim after it has been paid, within time limits set by law: Internal Revenue Code section 6501 (United States); Finance Act 1998 Schedule 18 paragraphs 24 and 46, via HMRC Enquiry Manual EM1510 and Compliance Handbook CH51300 (United Kingdom); Taxes Consolidation Act 1997 section 959AA, via Revenue Notes for Guidance Part 41A (Ireland); Income Tax Act section 152(3.1) and (4) (Canada); Income Tax Assessment Act 1936 section 170, Income Tax Assessment Act 1997 section 355-705 and the ATO, Request an amendment to a business or super tax return (Australia); Tax Administration Act 1994 section 108, via Inland Revenue SPS 20/03 (New Zealand); Income Tax Act 1947 section 74 (Singapore). More detail on your country page. It says what the adviser will do if that happens. In the sample, the adviser prepares written responses and attends meetings at no extra charge, for as long as the tax authority can enquire into that claim, and says plainly that this does not make the adviser liable for any tax, interest or penalty.

Support means help. Who pays any tax, interest or penalties is a separate question, answered by the law of your country and by the liability clause, not by this one. A clause that offers "audit support" without defining it leaves both the scope and the cost open.

What to look for

A version that is easy to live with says what the support covers (correspondence, meetings, revised calculations, work on new information from the tax authority), how long it lasts after filing, whether it is included in the fee or priced, and who will do it. It survives the end of the engagement, because the review may arrive after it.

A version to ask more about says support is "available" without saying whether it is included, ends the support when the engagement ends, prices it by the hour with no estimate or budget, or limits it to the claim as filed so that any new question is new work at a new price. If support is priced separately, that can be a fair choice, provided you knew it when you compared proposals.

Contract law differs by country, and so does what a letter can and cannot do. Ask a lawyer to review your own letter before you sign it.

Questions to ask

Sources

  1. A tax authority can review a claim after it has been paid, within time limits set by law: Internal Revenue Code section 6501 (United States); Finance Act 1998 Schedule 18 paragraphs 24 and 46, via HMRC Enquiry Manual EM1510 and Compliance Handbook CH51300 (United Kingdom); Taxes Consolidation Act 1997 section 959AA, via Revenue Notes for Guidance Part 41A (Ireland); Income Tax Act section 152(3.1) and (4) (Canada); Income Tax Assessment Act 1936 section 170, Income Tax Assessment Act 1997 section 355-705 and the ATO, Request an amendment to a business or super tax return (Australia); Tax Administration Act 1994 section 108, via Inland Revenue SPS 20/03 (New Zealand); Income Tax Act 1947 section 74 (Singapore). More detail on your country page.  Back

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