Inaccurate returns, errors, omissions or deliberate fraud: the software used by the Directorate General of Public Finances (Direction générale des Finances publiques, DGFiP) is becoming increasingly powerful. It alerts the officers in charge to irregularities, and they may then decide to launch an in-depth investigation, known as an adversarial in-depth examination of personal tax situation (examen contradictoire de la situation fiscale personnelle).

Tax audits also concern private individuals: notices of In-depth Examination of Personal Tax Situation are no trivial matter and must be taken seriously.

Usually, checks are carried out remotely: if no anomaly appears or if the report is not reliable, the procedure ends there.

If, on the other hand, you receive by post the well-known request for information form no. 754 or 2172, and its reminder, form 2172b, it is time to react.

How can you limit tax adjustments and approach this procedure calmly?
Read this guide to the ESFP: it sets out the stages of the audit of private individuals and summarises everything that is important to know.

What is an examination of personal tax situation?

The tax authorities are not satisfied: numerous shortcomings were identified during the review of your file in the offices of the tax authorities. An officer has looked into your case and gathered together all the information the tax authorities already hold about you. He has found numerous inconsistencies or anomalies. He needs a clearer picture of your tax situation, so he launches an in-depth examination of personal tax situation. This will allow him to meet you at his offices on several occasions, to ask you questions and to request further documents and information.

More precisely, this is how the procedure unfolds in most cases:

An inconclusive desk audit (examen sur pièces) (that is, in the offices of the tax authorities, without the taxpayer) leading to a request for additional information

Letters 752 (request to provide specific supporting documents) or 754 (additional information on family situation, place of residence and sources of income, etc.) will list the points to be clarified and the documents to be provided.

Do not keep the authorities waiting; they do not like it… All the more so since knowingly obstructing the audit would automatically place you in the “fraudsters” category, which may lead to an ex officio assessment of the tax base and a 100% surcharge on the reassessed tax (Article L74 of the Tax Procedure Code (Livre des procédures fiscales, LPF) and Article 1732 of the French General Tax Code (Code général des impôts, CGI)), and would almost automatically trigger the second stage: the tax audit of personal situation. If necessary, get in touch with a tax lawyer.

Standard errors (oversight or lack of knowledge of the law) are notified by a simple form no. 2120: pay your debt if it seems justified to you, or challenge it if not, and the matter will be closed.

Forms 752 and 754 signal a different intention on the part of the tax authorities: to find out more about your tax situation.

ESFP: when the tax authorities intrude into your private life and your bank accounts

A genuine financial investigation, which does not take place at your home, but at the premises of the DGFiP.

The officers will compare all your returns and your expenditure, and will scrutinise your bank accounts and the origin of all the assets of your tax household.

Although e-mail is becoming commonplace, the start date of the audit is announced by registered letter with acknowledgement of receipt. Look through your records and set aside the documents that will be of interest to the inspector. Put together a precise, concise and practical file, specifically for the interview. A professional can help you with this.

Calming things down from the outset is crucial for you.

The explanations and documents provided at the first meeting are therefore fundamental.

Tips for a successful examination of tax situation

Let us be clear: if the tax authorities have launched this audit, which is a heavy and in-depth audit procedure (several meetings at the tax offices, requests for numerous additional documents, etc.), it is because they believe that you are, to put it simply, a fraudster, and that they ultimately intend to impose tax reassessments on you.

However, the inspectors are not your enemies. They are simply doing their job.

Make sure you always establish a cordial and respectful atmosphere.

Make sure, moreover, that you have clear and tangible explanations. The officers in charge of ESFPs are receptive to them.

Prepare the important documents and think about the reason for the audit

Why are you being audited? This is the first question to ask yourself, because you will then be able to anticipate the questions of the tax authorities and prepare your defence.

The objective is ideally to make your defence watertight from the outset, or, at worst, to gain time, as well as to avoid irritating the tax officer with haphazard explanations that will reinforce his conviction that you are acting in bad faith.
Put yourself in his shoes: he hears arguments such as “But I didn’t know that I had to… It wasn’t me… I’m in a very difficult financial situation at the moment… If I did that it’s because I was in a financial stranglehold…” every day. And none of these arguments has any legal basis, so they will carry no weight.

Be clear about the facts, and arm yourself with legal arguments.

Remain courteous

Payslips, life insurance policies, leases, investments, transfer orders, notarial deeds, proof of employment, EDF/GDF (electricity and gas) bills, endless questions about your situation: expect your daily life to be put under the microscope.

This is not pleasant, and very stressful for some taxpayers, but avoid at all costs any lapse in conduct towards the officer in charge of the audit, as this could only work against you.

Documents attesting to your good faith

The purpose of the in-depth examination of personal tax situation is to obtain your explanations and to gather documents that the tax authorities do not have, or could obtain only by making an official written request (to banks, your employer, etc., which takes time and additional steps). It is therefore better to provide these documents, which the tax authorities will be able to obtain sooner or later in any event, and to appear transparent, than not to provide them and appear uncooperative.

Putting together a file with all the relevant documents is therefore important. These documents will support your explanations and prove what you are asserting.

How does the ESFP unfold?

You are first invited to meet an officer, generally holding the rank of inspector of Public Finances (inspecteur des Finances Publiques), at the premises of the tax authorities for a first meeting. You are asked to come to this first meeting with a whole list of documents, including the list of your bank accounts, your statements for three years, the list of your assets and your identity documents.

This first meeting is crucial. You must show the officer in charge of the audit that you are acting in good faith, that your affairs have been managed broadly in accordance with the legal rules, and that you have various supporting documents backing up your version of the facts.

Throughout the ESFP (which generally lasts around 6 months), it is essential to respond to the various oral requests (telephone, meetings, etc.) while making the file watertight through written steps. Keep a copy of all your letters and proof of their dispatch.

Check that the procedure has been properly followed

This is very technical, and you will probably not have the expertise to do it, but it is extremely important.

The procedure the officer must follow is strict and complex. The officer generally pays attention to it. The nervousness often felt on this point on the officer’s part clearly shows how easily a procedural error can be made.

Examples of procedural errors during an ESFP (but there are so many others, which of course vary according to the specific situation of the audited taxpayer!)

• Retention of the taxpayer’s original documents
• Failure to inform the taxpayer that they may be assisted by an adviser
• Failure to state that the taxpayer’s charter (charte du contribuable) can be consulted online or provided on request
• Reassessment proposal (proposition de rectification) issued out of time
• Forms 2172 sent to the wrong address or without acknowledgement of receipt
• Reassessments with insufficient reasoning (both factually and legally)
• Too few meetings with the tax authorities, or meetings that are too short (the tax authorities must establish an adversarial debate: that is, they must be able to prove that they listened to you sufficiently and gave you the opportunity to put forward your version of the facts)
• Mixing of procedures: for example, the tax authorities are auditing you as a private individual but start delving into your company’s accounts
• Procedural defect relating to the international exchange of information: the tax authorities request information about you from a foreign State but do not inform you officially, that is, in writing
• Etc. The list is long and varies from case to case

As you will have understood, one misstep and all the reassessments ultimately applied could be cancelled.

If the financial stakes seem significant to you, call on a tax professional, such as a tax lawyer, to assist you.

In-depth examinations of personal tax situation and reassessments are in principle possible until the end of the third year following the year for which the tax is due (Article L169 of the LPF); this period may be extended to 10 years in certain cases (undeclared activity, undeclared foreign accounts, etc.). Failure to comply with these time limits constitutes a procedural defect. It goes without saying that, to benefit from this right, your income returns must be in order.
An annotation error or an invalid overlap of dates, and the audit could be tainted by a “formal defect”.

The absence of a fair adversarial and objective debate may also give rise to a procedural defect. As this is difficult to prove, it is preferable to call on a tax law specialist.

These legal subtleties often prove their worth, so why go without them? If your income tax returns are reasonably completed, and taking into account the tolerances allowed by the tax authorities, there is no reason to worry. In the event of errors or misunderstanding of the law, as we have seen, effective means of defence will be available to you… provided, of course, that you inform yourself or seek advice from a professional.
Study the ministerial circulars and publications; they are admissible support in the event of a dispute.

Above all, remember that burying your head in the sand is the worst defence! Reply to letters/calls/e-mails, attend the meetings proposed by the tax authorities, and provide the required documents.

If you do not, you will make the inspector‘s task much easier, as he will be able to impose so-called ex officio reassessments on you. This will be much quicker for him, and he will not have to bother meeting you, listening to you, building coherent lines of attack, sending letters, putting his file together…

Showing up, with a good defence, is by far the best strategy to make the inspector’s task drastically harder, both on the merits and in procedural terms, and often to reduce the amount of the reassessments.

Our tax law firm can assist you.