Original tax debt can quickly get out of control with the accruing interest and penalty fees. This may result in the debtor becoming insolvent and facing bankruptcy (for individual debtors) or liquidation (for companies) proceedings commenced by the Inland Revenue Department (IRD).
At Norling Law, we have extensive experience negotiating settlements with the IRD. Settlement with the IRD could be in the form of a provisional payment plan and/or partial principal debt/interest/penalties write-off. When faced with a settlement proposal, the IRD has a set of requirements that they must consider. At Norling Law, we take these requirements into account when formulating a settlement proposal.
In the event the debtor is not in a position to settle the debt, we can provide advice on other alternatives to bankruptcy and liquidations. The sooner the issue with the outstanding debt is addressed, the more options could be available.
Below we set out a recent example of a negotiation conducted by us on behalf of a client, which resulted in a significant write-off of the client’s debt to the IRD.
Our client was in significant arrears with the IRD, amounting to approximately $558,000. This amount related to a company and its two individual shareholders. This particular client, due to unforeseen circumstances, failed to meet its tax obligations over a period of approximately 3 years.
Our client came to Norling Law for assistance when the sole director of the company had a serious accident leaving them unable to earn an income. They came to Norling Law to obtain specialist insolvency advice.
First, we explained the legal consequences of this situation and provided our client with a detailed memorandum of advice which explained their options going forward. Included in this advice was a practical pathway to voluntarily liquidating the company and explaining the possible risks associated with liquidation. We also provided an outline of various steps and timelines that would take place in the liquidation proceeding, which provided the necessary support and guidance to our client in this particularly stressful time of their life.
We also interviewed our clients and explored:
- The personal and financial circumstances they were experiencing at the time of the tax arrears;
- Analysed their current financial position; and importantly
- The effect of the serious accident and the consequences for them currently; together with all
- Other matters relevant for an application for financial hardship.
We then conducted negotiations with the IRD on behalf of the client focussing on these four areas. We assisted our client to apply for financial relief under Section 177C(1) of the Tax Administration Act 1994. The outcome was an astounding $558,000 reduction in the tax payable for the company and both shareholders personally. Due to the unique set of circumstances, our client was able to resolve the matter entirely with no payment due to IRD at all. This provided our client with enormous relief at a particularly stressful time of their life.
Our client could draw a line in the sand and move on with life free of the stress of having outstanding arrears with the IRD. They could move forward with a clean slate with IRD.
Whether a reduction of debt owed to the IRD can be achieved depends on various circumstances associated with the non-payment of tax, position of the debtor and etc.
If you would like further information in relation to negotiating a settlement of your outstanding tax debt with IRD, contact the team at Norling Law at info@norlinglaw.co.nz or you can book a consultation here: https://calendly.com/wendy-506/30min
Brent is the Director of Norling Law. He has a wealth of experience in the District Court, High Court, Court of Appeal and Supreme Court. Brent is passionate about negotiating favourable outcomes for his clients and able to implement this in his daily negotiations.
Anna practices in the area of commercial litigation and has appeared as Counsel in the District Court, High Court and the Court of Appeal, having successes in all Courts. Anna has a special interest in corporate, insolvency and relationship property law.
Wendy has over 20 years’ experience in civil litigation in New Zealand with a main focus on construction, insolvency and debt recovery and security enforcement.