As a private individual, being subject to a tax audit is often traumatic. When other taxpayers seem to be in the same situation and do not suffer any reassessment, the situation may seem unfair.

However, a tax audit is not carried out at random. It is generally triggered following:

• A desk audit (contrôle sur pièces) that has revealed significant anomalies
• A request from central administrations, such as the national or regional directorates, for tax audits targeting particular taxpayer profiles
• Information from third parties
• A failure to file returns

The desk audit detects anomalies

This scenario is very common, since it is the first stage of the tax authorities’ investigation. This first phase may even have begun without the individual being informed. It is only when inconsistencies and anomalies are identified that the taxpayer will receive a tax audit notice. It will inform the taxpayer that errors or omissions are present in his or her returns and that he or she will have to provide explanations on the matter.

The inconsistencies identified are most often differences between two returns, anomalies within the same return, or inconsistencies between the returns of two members of the same household.

For example, maintenance payments made by a father but not declared by the mother constitute an anomaly. As soon as such anomalies come to light, they will trigger a specific procedure with regard to the taxpayer or taxpayers concerned.

In this case, the tax authorities start by sending a request for information. If the reply received is satisfactory, the file will simply be closed. If not, it may lead to a tax audit. This may take the form of an in-depth examination of personal tax situation (examen de situation fiscale personnelle, ESFP) in order to look more closely into the individual’s returns. The individual will therefore have to provide a certain amount of information and documents to clarify his or her situation, which can be produced by your tax lawyer.

Directives decided at central level

When the tax authorities notice an increase in fraud in a particular sector, they may decide to launch audits targeting the profile of the taxpayers concerned or certain types of transactions. The aim is to detect other frauds and stop the persons involved.

An individual may therefore be affected by a tax audit in this scenario.

The Minister of the Economy may thus order it from Bercy. It may also come from a departmental (or regional) public finance directorate that decides to launch a campaign of tax audits to deter fraudsters. When transactions such as Pinel investments or stock market shares give rise to repeated fraud, the tax authorities will order that priority be given to these types of transactions. Taxpayers with this profile will therefore be subject to a tax audit.

To avoid being targeted by a tax audit, you must therefore make sure that your returns are always consistent.

In the event of a request for clarification and justification (demande d’éclaircissements et de justifications), it will be important to respond as quickly as possible with supporting evidence and a clear, concise and well-argued file, which a tax lawyer can help you produce. As regards investments, it is also important that the associated accounts are consistent with the returns filed.

Other sources of information

It is important to know that the tax authorities regularly exercise their right of disclosure (droit de communication). Data from Urssaf, health insurance or pension funds, or banks make it possible to uncover inconsistencies with the returns filed.

In this scenario, the tax audit will be ordered in order to examine more thoroughly the difference between the returns filed and reality. A request for clarification and justification may be sent, unless an ESFP is preferred given the extent of the anomalies. The individual’s lifestyle will be analysed to determine whether income is being concealed.

Audit of a third party

For a family, a couple or persons living together, each individual return must match the others. If this is not the case, you should expect a tax audit, which will not be a matter of chance. When the annual returns are received, the information submitted is checked. Obviously, the same amounts must be declared in the case of joint transactions. If they differ, they will attract attention.

As soon as an inconsistency appears, the tax authorities will have to determine whether it is a simple error or a genuine intention to conceal income; as the line between the two can very often be subjective, your tax lawyer can assist you in asserting your good faith against any accusations of fraud. Several means are then available to the authorities, such as the ESFP or the request for clarification and justification. Once the process is under way, you will need to be able to prove your good faith in order to avoid a tax reassessment.

Failure to file a return

Declaring one’s income is an obligation for taxpayers. Even if they are not taxable, they must complete this formality. A tax audit may be launched following one or more failures to file. Sometimes the taxpayer thinks there is no need to file, so a simple request is sufficient. For others, a formal notice (mise en demeure) may be issued to compel them to declare their income.

A tax audit may also be decided if a return is filed after several years of failure to file, or if a partial return is filed. These are all situations that can trigger a tax audit. The tax authorities may even decide on an ex officio assessment (imposition d’office).

Denunciation: myth or reality?

When a taxpayer is denounced by a third party, a tax officer may be tasked with verifying the truth of the allegations. If doubts arise or if an anomaly is actually found, a tax audit may begin. Its role will be to determine whether tax fraud has actually been committed. The authorities may use a desk audit to begin the verification and then continue with another form, such as the examination of personal tax situation.

Not all cases of denunciation necessarily lead to a tax audit, since anomalies or inconsistencies must be discovered. An individual who is audited may therefore have been denounced by someone close to him or her. In practice, however, this is very rare.

Our tax law firm can assist you.