IRD Debt Settlements
Let us talk about debt settlements with the IRD as Covisory’s Chris Ng and Nigel Smith have been doing quite a lot of these recently and many of them still link back to the 2020 COVID lockdowns.
We are currently seeing a lot of the debt applications made to the IRD not getting approved and accepted when people thought they might have. So why is that happening?
In essence when the application is made the applicant is not providing a full picture to the IRD so they can go down their criteria and work out if this is a viable solution. There needs to be a plan presented to the IRD that meets their criteria.
What are these criteria? Firstly, you have got to put yourself in the shoes of the IRD, the IRD wants to know why haven’t you paid your tax, it’s a really simple question.
So obviously there are areas that can assist your case:
- File your returns on time even if you can’t pay the tax,
- Get in touch with the IRD quickly and outline why you can’t pay your tax and what the problem is,
- If it is a new problem, how is it going to sort itself in the future,
- And most importantly how are you going to pay the money back, how are you actually going to get funds when you haven’t been able to pay them on time.
- Other areas the IRD consider is whether you are a recidivist offender, are you well known to the IRD, if this is the case then you are probably not going to get a great reception if that is the case.
In our experience, most of the problems have been a lack of supply of detailed information. For the IRD that information would include up to date bank statements, forecast cash flows, what the plan is for money coming through to meet your obligations and have you met your obligations in terms of return filing.
Think of the IRD as being a creditor like a bank lending you money when you are collecting debts the best debtor is the one that comes to you and says “Hey I cannot pay you, there is a reason for this” rather than the one that you have got to ring 20 times before you get someone.
If you want to get a good reception at the IRD file your returns on time even if you cannot pay and the quicker, you get in touch with them the better. Even if you say look, we cannot pay, we will be back to you in a couple of weeks, we are working on a plan and we are going to tell you what is happening.
A recent example we worked on involved the non-payment of $5m GST. In this scenario, most people would have been made bankrupt and the companies wound up. But we were able to demonstrate to the IRD a perfect storm, why it happened, and we could demonstrate there were assets and equity to meet the tax and how that would occur. It would rely on the IRD hanging in there for a couple of years and waiting until properties got sold. But the other half of that was we communicated regularly with the IRD. We got down to monthly meetings with them at one stage just to give the IRD an update so there was a consistent flow of information.
It’s better to under-promise and over-deliver. Don’t make promises you cannot keep you are better to promise less and deliver a bit more and give yourself some wriggle room as well because things don’t always work out as you want.
In addition, remember firstly that actions are far better than words. If you can demonstrate actions that you have taken to settle the debt or to make payments or to get yourself in a better position to make payments the IRD will look at that in a far better light than a whole lot of words.
Secondly, money talks, if you can give them something upfront when you owe them money great.
If the IRD is saying no there has got to be a reason for it. If you get a no, then it would be useful to look at what they say to you in the correspondence and identify what is it that you are missing or alternatively have a discussion with them about what criteria that you failed to meet their sign off on and look to provide that information if necessary.
We went back to the IRD 4 times before we got a particular amount on the settlement but what we did manage to do is each time we gave the IRD more information, so they understood that was our best offer.
It's a bit like playing poker, you go to the IRD and say it's my best offer they say no, and you give them more, and of course if they say well if your first offer was your best offer now you have got a better one if we say no again are you going to give us an even better one. So, you have got to be consistent as well in your dealings or your credibility is out the window, really was it my best offer.
Most importantly there is communication, you are now talking, and you have a two-way conversation going about the situation at hand and providing that information.
At times it is difficult dealing with the IRD but 90% of the time it is communication, and you need to understand why they are saying no.
Contact us to discuss how we can help you with your Debt Settlement