Tax Audit - It Starts Before the Notice and Does Not End With the Act
For a company a tax audit is rarely "just an audit": the auditor is looking for grounds to assess, and every reply to a request, every document produced and every explanation becomes part of the future act and the future dispute. Companies that "leave the audit to the accountant" and call a lawyer after the act start the dispute with material they created themselves during the audit.
This page describes an audit as a process that needs managing: which audit means what and for how long, what rights the taxpayer has and where the auditor's authority ends, how a lawyer responds to document requests and interviews, what the act and the disagreement protocol mean, when a tax settlement is worth it, and how the criminal risk that appears behind a large assessment is managed. Appealing an assessment is on a separate page.
Updated · Practice area: Tax lawyer
Which Audit Means What - Desk, Field, Thematic, Control
The type of audit determines where it takes place, for how long, on which documents and with which rights. That is the first thing the lawyer establishes on reading the notice.
Managing an Audit - From the Notice to the Disagreement Protocol
Analysing the notice
Type, period, taxes, basis, deadline, and the lawfulness of the audit: is it within the limitation period? is it a repeat? is there authorisation? The lawyer fixes the scope and challenges requests outside it immediately, not after the act.
Internal audit before the audit
What the auditor will see: disputed expenses, counterparties with VAT risk, related-party transactions, reverse charge, document defects. With the accountant the lawyer draws a risk map: which positions are defensible, which should be corrected (an amended return with a reduced penalty) and which are matters for negotiation.
Responding to document and information requests
A request has a deadline, a scope and a form: exactly what was requested, on time, with a handover act; not "everything", not orally. Explanations in writing and reviewed by the lawyer; a verbal "let me explain briefly" is written differently in the act. A request for an extension if the volume is unrealistic.
Controlling the conduct of the audit
The auditor's actions checked against the notice and the law, attendance at inventory and inspection, remarks recorded in protocols, monitoring of third-party questioning. Communication through one channel, the lawyer or the responsible person, not through employees "helping".
The act and the disagreement protocol
The audit act sets out the grounds for assessment; the taxpayer has a period to submit a disagreement, which is reflected in the act and becomes the basis of the subsequent dispute. The lawyer writes the disagreement with the structure of a future appeal: fact, rule, evidence, alternative calculation, separately for each assessment.
Settlement or dispute
After the act: a request for a tax settlement (paying part of the sum with reduced penalty and interest, or closing the criminal risk) or an appeal. The lawyer calculates both routes: what is defensible in court and what the dispute costs in time, money and risk.
What the Auditor May and May Not Do - The Boundaries Often Breached in Practice
The auditor's authority is bounded by the notice and the law: the requested period and taxes, documents relating to the tax liability, inspection and inventory in the presence of the taxpayer's representative, requests for information from third parties. Beyond that authority: auditing a period or tax outside the notice, arbitrary seizure of personal correspondence and devices, "questioning" employees without a protocol, demanding documents without a deadline, "recommending" under pressure that the taxpayer file an amended return.
The taxpayer has: the right to know the basis and scope of the audit, the right to a representative (a lawyer) at every stage, the right to produce documents within the deadline and to request an extension, the right to record remarks in protocols, the right to disagree with and appeal the act, and, importantly, the right to challenge an unlawful act of the auditor during the audit, not only after the act. Failure to use these rights is later read as "consent" in the dispute.
Separately, the shadow of criminal law: an assessment above the statutory threshold can become the basis for an investigation. Explanations during the audit are therefore written from a criminal as well as a tax perspective: error and intent are different things, and wording that leaves the impression of "we knew and did it anyway" moves from the act into a case file. A lawyer's presence at this stage exists for exactly that.
The Numbers an Audit Turns On
- Audit period
- A field audit within the statutory period, extendable with reasons; a desk audit has a softer formal limit. Breach of the period is itself a ground for challenging the act.
- Document production deadline
- Stated in the request, often a few days; failure to produce leads to a fine and a presumption that "the document does not exist". An extension is requested in writing, with reasons, before the deadline expires.
- Disagreement deadline
- A statutory number of days from service of the act to submit a disagreement: the only moment when your position is reflected in the act. Missing it does not make the act "undisputed", but it complicates the dispute.
- Limitation
- Audit and assessment only for periods within the limitation period; in certain cases the period is extended. Checking the period in the notice against limitation is the first thing the lawyer does.
- Amended return
- An amendment filed before the audit starts (or in certain cases during it) reduces or removes the penalty: the main argument for an internal audit before the audit. After the audit that possibility narrows.
What Must Be in Place Before an Audit - What the Auditor Asks For First
- Every contract with counterparties, signed and with annexes: the first evidence that an expense or credit is "real"; an invoice without a contract is a suspicion to the auditor.
- Acceptance acts, waybills, transport documents: evidence that goods and services were actually received, not just the invoice.
- A history of counterparty checks: registry, VAT status, contacts, correspondence; the counter to a "fictitious transaction" allegation.
- The economic justification of expenses: why the expense was needed for the business, marketing, consulting, travel, entertainment. The main counter-argument to a "non-business expense" assessment.
- Market-price justification for related-party transactions: comparable prices, valuations; management, loan and rent arrangements with partners.
- Consistency between accounting and tax records, returns and payments for the period, previous audit acts and their implementation.
Three Audit Cases
An audit the accountant "handled alone"
A desk audit of VAT credits; the accountant explained verbally, produced documents in part and missed the deadline. The act: a 210,000 lari assessment on "unconfirmed" credits, plus penalty. The lawyer after the act: a disagreement with full documentation, counterparty confirmations, a dispute of 14 months and 80% of the assessment cancelled. With a lawyer during the audit the assessment would have been minimal from the start.
A field audit outside the scope of the notice
A notice for 2 years of profit tax; the auditor demanded 5 years of VAT and income tax documents and ran an inventory without a representative. Lawyer: a reasoned refusal of requests outside the scope, a challenge to the inventory protocol for breach of procedure, a complaint about the lawfulness of the audit while it was ongoing. The act was written only within the scope of the notice.
A large assessment and the criminal threshold
The audit showed a 900,000 lari assessment, far above the threshold; the director was going into the interview in an "I will explain" frame of mind. Lawyer: interviews only in writing and with a lawyer, the position framed as error not intent, a disagreement with reasons on half the assessment, and in parallel a request for a settlement on the rest. The settlement was concluded; no criminal case was opened.
Questions About Tax Audits
The Revenue Service requested documents within 5 days and we cannot prepare that volume. What do I do?
A written request for an extension before the deadline with specific reasons (volume, archive, the accountant's absence); in practice it is usually granted. In parallel, produce what is already ready within the deadline with a handover act. Silently missing the deadline leads to a fine and a note that "the document does not exist", and correcting that in the act is already a dispute.
The auditor says I should file an amended return myself and "finish simply". Is it worth it?
Sometimes yes: an amendment reduces the penalty if the position really is weak. But an amendment is your admission, which you cannot later appeal, and the auditor's "recommendation" often concerns an assessment they could not have justified in the act. The lawyer assesses the position: no for defensible items, yes for weak ones, with written confirmation of the penalty reduction.
During the audit employees are being questioned separately. Can we refuse?
A request for information is lawful, but in form: a written request, a protocol, a representative present. Verbal "conversations" in the corridor are not a procedure and an employee has no obligation to answer them. The lawyer sets one channel of communication and briefs the employees on what is their right and what their obligation.
The act was served and payment of the assessment is demanded within 30 days. Does an appeal suspend payment?
An appeal within the statutory period generally suspends compulsory enforcement of the disputed sum until the dispute ends, though interest accrues and in certain cases security is required. A disagreement protocol on the act is not an appeal; the appeal is a separate document with a separate deadline. The lawyer counts both from the day the act is served.
There was an audit 2 years ago and now the same period is being audited again. Is that allowed?
A repeat audit is allowed only in the narrow cases the law provides: new circumstances, review by a superior body, a request in a criminal case. "Just once more" is not. The lawyer requests the basis for the repeat audit as soon as the notice arrives and, if there is none, challenges the audit while it is ongoing.
Lawyers for Tax Audits
The value of a lawyer during an audit is that the act is written with your documents and your position, not the auditor's interpretation, and the dispute starts from the act, not from nothing. Within 15 minutes the coordinator connects you with a lawyer who accompanies audits by the Revenue Service.
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