How tax credits work
Certain company expenses are eligible for tax credits, which offer companies more working capital or helps them pay off other expenses. These credits were created by public authorities to support and encourage companies’ development. Here we will discuss two of the most well-known tax credits, the CIR and the IECC.
The research tax credit (CIR) allows companies to deduct expenses for research and development, such as researchers’ salaries and fees for obtaining a patent. Similarly, the innovation tax credit, reserved for small businesses, offers credit for expenses related to designing prototypes or pilot installations for new products.
The tax credit for competitiveness and employment (CICE) is a tax benefit equivalent to a reduction in payroll taxes designed to encourage investment, exploration of new markets, training, and recruitment. The use of this tax credit must be included in the annual accounts of the company.
Tax credits, therefore, serve a productive and worthy objective. However, in accordance with the unofficial state policy of "taking back with one hand what the other gives," auditors are openly given instructions to verify the tax credits a company claims. It is clear then, that the risk of a tax audit is never far away.
What exactly are the risks?
Let’s say you are a business owner, and you have received one or more tax credits, believing in good faith that your company met all the criteria for eligibility. You could possibly receive a notice of an account audit, which would allow the tax authorities to review all of your receipts and accounting records.
Auditors of public finance are paid to uncover as many faults as possible (understandably so) and to question the validity of any particular tax credit.
In any case, your company might find itself the “lucky” recipient of a proposed tax reassessment, following an auditor’s investigation. Apart from adjustments for other reasons, a total or partial challenge of the tax credits you have obtained can sometimes result in substantial penalties if the IRS believes you have committed tax law abuse.
It is thus necessary to respond quickly in order to avoid endangering your company and putting it at risk for other serious consequences.
You have been audited. What recourses are available to you?
Receiving a proposed tax reassessment does not automatically mean you must now adjust your accounting and pay more taxes accordingly. However, you do have to just sit tight and be responsive and compliant with the tax administration if you want them to to reconsider their position.
If the inspector charges you with adjustments that are unjust and unfounded, various remedies are available to you. These include appealing to a supervisor or superior, having the file examined by a third party, and finally, referring jurisidiction to the County Commission. It all depends on your unique situation, and from there we will decide which one of these recourses is most appropriate for resolving your case.
If these options do not work for you, you have the option after the state repossesses the disputed charges to introduce a claim with a request for an injunction. And if that proves unsuccessful, fortunately you still have the option to bring your case before the Administrative Court.
A tax law professional can help you mollify an overzealous auditor. Our tax lawyers will provide you with their expert insight throughout the process and will pursue all appropriate and necessary remedies under the charter of rights and obligations of the taxpayer.