In 2001, I sold a property and I had a CGT tax liability of IR£10,000. This was calculated by an accountant and I got a bank draft made payable to the Revenue Commissioners. My solicitor requested that I forward my calculations together with the bank draft which I duly did.
To my shock I was contacted by my bank in late 2004 when it was doing a reconciliation of outstanding Irish pound drafts post the launch of the euro in January 2002 to say that the bank draft was never negotiated.
I contacted my solicitor who told me that he had misplaced the draft and requested that I complete an indemnity with the bank and have a new draft issued payable to the Revenue. He advised that he had a contact in the Revenue and that there would be no issue with tax penalties.
I had the new euro draft forwarded to the solicitor.
I thought no more about this matter until I was recently disposing of some shares and opened a file that I keep under the heading CGT.
I called the bank this week to be told that the bank draft was never cashed.
The solicitor is no longer in practice. As it is over 20 years since this CGT should have been paid, I am extremely worried about this coming back to bite me. As a PAYE taxpayer, I am always meticulous about having my tax affairs in order.
I also realise that it is unlikely to come to Revenue’s attention but it is wrong to have the draft not given to Revenue. Is this a matter for the Law Society?
Mr J.J., email
You appear to have been profoundly unlucky in your choice of solicitor here. Their legal advice may have been very sound but, on the basis of the facts you outline, there appears to have been an issue in handling money.
The penalties accruing over the last 21 years should be interesting if it comes to it. You do have a potential headache though there is certainly no guarantee that the Revenue Commissioners will pursue it.
There are a couple of issues here. Primary among them from your point of view is the responsibility for the tax. And in relation to capital gains tax, that is down to you, the taxpayer. It is your responsibility to ensure it is properly calculated and returned. And if Revenue were to pursue anyone, it would be you, not the solicitor.
I suppose the key question is whether they will. And, in truth it is unlikely. As I understand it, there is nothing to stop them going back as far as they like, though to be raking over the coals of a case more than two decades ago, they would likely need a reason to believe there was deliberate and/or significant fraud.
Such trawls cost them a lot of money and Revenue is nothing if not pragmatic. The sum here, with interest and penalties could be very significant for you — certainly a multiple of the original debt once penalties and, more particularly, interest, which can be levied on a daily basis, is applied. Twenty years plus of interest is no laughing matter. But the cost to the Revenue of pursuing someone over a 20-year-old bill would also be significant, especially if the issue got enmeshed in a Law Society investigation.
Again my understanding is that, without very strong reason, a Revenue audit would not go back more than seven years which is the time we are expected by the tax authorities to keep receipts and other tax-relevant paperwork.
But if they do, it would not be pleasant. Also, it would not be surprising in those circumstances for Revenue to trigger an audit to make sure there was nothing else they had missed and you really do not want to get caught up in a Revenue audit. It is a painstaking process and few of us are as fastidious in our paperwork as Revenue would like.
In reality, the bigger issue here may be your own conscience. You state that you have always been meticulous in your own tax affairs. That being the case, an issue here is how much this outstanding tax bill is going to niggle and worry you.
If you can live with it at this stage, I suspect Revenue can too — though there is certainly never a guarantee in that department.
One thing that intrigues me is how you allowed it get to this stage.
As I said, calculation and payment of tax is your obligation, not that of your solicitor or accountant. It’s not entirely unusual for a solicitor (or an accountant) to act as conduit with the Revenue — though, certainly for solicitors, I suspect it is less so these days than it might have been 20 years ago.
But you had already seen one draft go astray here. Not only was it not paid across to Revenue in a timely manner when it should have been but it could not be found at all when it was discovered three years later that it had never been cashed.
Solicitors’ offices are organised places. They have to be given the sensitivity of the matters they deal with. Any draft sent to the office should either be in your file or a file the office had for payments being processed, most likely with a copy in your file to confirm the action taken.
Having seen one draft mislaid, I would have been very reluctant to use the same solicitor as a conduit for the second, euro draft. I can see the attraction of their reported assertion that they could square the issue of penalties with a “contact” in the Revenue but even that is playing a little fast and loose.
Certainly even if, as in this case, you trusted the solicitor a second time, I would have made a point of checking with the bank to make sure it had been cashed. That you didn’t, given your approach to your tax affairs, is surprising.
Revenue is not in the habit of holding on to uncashed drafts so it should have gone through the system fairly quickly, especially as, one presumes, the solicitor should have been at pains to make sure there was no slip-up the second time.
Which brings me to your final point — is this a matter for the Law Society?
There is no suggestion the solicitor was involved in any fraud here; neither draft was cashed. But mishandling of client finances is definitely a hot issue for the Law Society and one they tend to address when any substantiated allegations are made.
The defining issue here though is that you say the solicitor is no longer in practice so I am not sure precisely what they can do about it. The only benefit of you reporting the case formally to the Law Society that I can see is the hope that it will bolster your case for mitigation of penalties should the Revenue come calling. But I’m not sure how impressed they would be that it took you over 20 years to do so.
- Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
