Successful Defence of Tax Fraud Charges

CASE STUDY:Rotfleisch & Samulovitch successfully defends retailer on tax fraud charges

CLIENT: A convenience store operator, Ms. Lixin Wang

Brief Situation Overview

The owner/operator of a convenience store, Ms. Lixin Wang, was wrongly assessed under the Tobacco Tax Act for tax fraud for more than $30,000, an amount that represented alleged taxes and penalties associated with the unlawful possession of unmarked cigarettes. Ms. Wang paid off this amount to avoid the accumulation of interest, but was steadfast in her belief that she had been wrongly assessed and had done nothing wrong.

Ms. Wang was adamant that the quantity of unmarked cigarettes that the tobacco enforcement officer claimed to have found on the store premises was grossly over-inflated, and also asserted that any unmarked cigarettes that were on the premises did not belong to her, but were in fact the property of an old acquaintance for whom Ms. Wang was storing several items in the basement of the store.

Problems & Challenges

There were several significant obstacles for Ms. Wang to overcome:

• She did not deny that there were unmarked cigarettes on the property: she only asserted that any unmarked cigarettes found by the tobacco enforcement officer belonged to someone else. Therefore, a significant issue was whether or not Ms. Wang’s claim that the unmarked cigarettes were not hers could be framed as a defence to the entire assessment.
• In a “he says-she says” argument with a governmental organization about the quantity of cigarettes found on the property, Ms. Wang was at a significant disadvantage due to a complete lack of favourable documentary evidence. All available documents related to the assessment were prepared by either the Tobacco Enforcement Officers assigned to the case, or the Ministry of Finance. All of these documents completely contradicted Ms. Wang’s version of the facts.
• – Ms. Wang insisted that no more than 1,200 unmarked cigarettes had been found on her property, whereas the Ministry of Finance insisted that the tobacco enforcement officer had found in excess of 28,000. However, the most important piece of evidence in this dispute about quantity, the unmarked cigarettes had been either destroyed or discarded by the Ministry of Finance fairly early on in the tax litigation process.
• The acquaintance, for whom Ms. Wang was unknowingly storing unmarked cigarettes, was unavailable and thus could not corroborate Ms. Wang’s version of the facts.

The Approach & Solution

Ms. Lixin Wang retained our Toronto tax law firm, Rotfleisch & Samulovitch, to represent her interests. Specific actions included:

• Conducted a detailed analysis of the Tobacco Tax Act and equivalent out-of-province legislation to develop a coherent interpretation of the specific offence on which the tax assessment issued against Ms. Wang was based;
• Our Toronto tax law firm reviewed historical tax litigation case law relating to the Tobacco Tax Act and similar out-of-province legislation to develop our position that a “due diligence” defence was available to Ms. Wang;
• Drafted and filed a Notice of Objection to the tax Assessment issued to Ms. Wang under the Tobacco Tax Act on her behalf;
• Prepared detailed submissions to, and corresponded with, the Ministry of Finance Tax Appeals Officer assigned to Ms. Wang’s tax Objection file;
• Drafted and filed a Notice of Appeal with the Superior Court of Justice subsequent to the Ministry of Finance confirming the tax assessment issued against Ms. Wang;
• Represented and guided Lixin through each stage of the tax Appeal process, including Examinations for Discovery, Mediation and attending the Superior Court of Justice for various purposes, including Pre-trial Conferences; and
• Our team of Canadian tax lawyers actively engaged numerous representatives of the Ministry of Finance, at each stage of the tax litigation process, to discuss avenues for settlement that were beneficial to Ms. Wang.

Results

The Canadian tax lawyers at Rotfleisch & Samulovitch were able to negotiate a settlement under which the original assessment issued against Ms. Wang was completely withdrawn along with all charges relating to it. In addition, all amounts previously paid by Ms. Wang on account of the tax assessment were refunded to her with interest. This was a 100% victory and a complete vindication of her position that she did not commit tax fraud.

Practical Tax Tips From This Successful Tax Fraud Defence

• If you are wrongfully assessed for taxes, penalties and/or interest owing, immediately retain an experienced Canadian tax lawyer to represent your best interests. If a tax auditor shows up at your place of business, call a tax lawyer right away. Do not let the tax auditor leave the premises without having your tax auditor verify what they have done.
• Always question the interpretation that CRA tax auditors or representatives of the Ministry of Finance give to a particular piece of legislation.
• Explore all possible settlement options before going to Court. Trial is expensive for all parties involved, including the government.
• Respond to any tax assessments, tax prosecutions or tax correspondence on a timely basis through your tax lawyer.
• Make sure your Canadian tax lawyer stands up for your rights.

Learn More: Visit our tax appeals page. Visit our tax court appeals page.