The Desk Audit: How It Works in Detail

Of all the tax audits carried out each year, the desk audit (contrôle sur pièces) is the most common. Conducted from the tax office, it consists in checking the consistency of returns on the basis of the information the tax authorities hold and the supporting documents they may request. It is often the first stage of a possible tax reassessment.

This article presents how it unfolds, the items checked for businesses and individuals, and its possible outcomes. A careful reply to the tax authorities’ requests, prepared with a lawyer where appropriate, often makes it possible to close the file.

How a desk audit unfolds

The desk audit does not take place on site: it is conducted remotely, from the tax office. Unlike the business tax audit or the review of the personal tax situation, it does not give rise to a prior notice (article L47 of the Tax Procedure Code, LPF). The taxpayer is only informed of it if the tax authorities send a request for information, clarification or justification, or a reassessment proposal.

It is nevertheless a genuine audit, which may cover a large number of items in the returns and lead to additional tax.

The request for information

It seeks explanations of certain figures or transactions, without requiring evidence at this stage. It is generally made in writing and states a period for replying, often around thirty days.

It is in principle not binding: no penalty is provided for if there is no reply. Silence may, however, lead the tax authorities to initiate a more binding procedure.

The request for clarification or justification

Provided for by article L16 of the LPF, it concerns income tax and is therefore mainly aimed at individuals. It may relate in particular to family situation and dependants, deducted expenses, assets and income held abroad, or the origin of sums where the tax authorities have evidence suggesting that the declared income is incomplete.

The taxpayer in principle has at least two months to reply. A reply considered insufficient gives rise to a formal notice to supplement it within thirty days; failing to reply, or a reply amounting to no reply, may lead to an ex officio assessment. The details are set out in the article on requests for clarification or justification.

Requests sent to third parties

During the audit, the tax authorities may also exercise their right of disclosure to obtain documents from third parties, in particular:

• administrations and social security bodies (Urssaf, social security funds, family allowance funds, etc.);
• a business’s customers and suppliers;
• banks and financial institutions, including, through international administrative assistance, foreign tax authorities.

The items checked

For businesses

The tax authorities first check that the business has filed all its returns (corporate income tax, VAT, etc.) and kept the mandatory accounting documents (balance sheets, income statements, notes). They then examine the consistency of the items declared, for example:

• the match between the VAT declared and turnover;
• the consistency between salaries and social charges and the business’s headcount;
• the consistency of stock turnover;
• the correct offsetting of losses.

For individuals

The desk audit is above all concerned with the consistency of returns. It often covers:

• family situation: dependent children, maintenance payments, single-parent status;
• the expenses declared and tax reductions or credits;
• salaries, pensions and benefits, compared with the information provided by employers, pension funds and other third parties;
• rental income and the expenses deducted;
• income and accounts held abroad, reported in particular through the automatic exchange of information.

The tax authorities may also compare declared income with changes in assets and lifestyle: a significant change in income, movements in assets or a marked disproportion with expenditure may lead to questions, or even to a more in-depth audit.

The frequent case of foreign accounts and income

Information received from abroad (automatic exchange of bank account information) is often handled through a desk audit: the tax authorities compare the accounts reported with the taxpayer’s returns and may send a letter inviting him or her to regularise the situation. What to consider in that case is presented in the article on forgetting to declare a foreign account.

The outcome of the desk audit

At the end of the audit, three situations may arise:

• the explanations and supporting documents provided are considered satisfactory: the file is closed;
• errors or omissions are found: a reassessment proposal is sent to the taxpayer, who in principle has thirty days (extendable by thirty days on request) to reply;
• the information obtained is insufficient or suggests that the situation is more complex: the tax authorities may initiate a more in-depth audit, such as a business tax audit or a review of the personal tax situation.

Even in a desk audit, the reassessment proposal must in principle be reasoned and state the right to be assisted by an adviser. Replying to this proposal is detailed in the article on the reassessment proposal. The firm can assist you at each of these stages.

FAQ

Read more

• What Are the Forms of Tax Audit?
• Tax Audit: Why Me? What Triggers an Audit?
• Request for Clarification or Justification from the French Tax Authorities: Deadlines, Reply and Consequences