Tax Lawyer to the Rescue

Tax audits can be overwhelming for small businesses and self-employed individuals in Quebec, especially when the audit escalates into penalties, proposed reassessments, or accusations of non-compliance. While most GST/QST or income tax issues can be resolved with proper documentation and CPA support, some cases require the intervention of a tax lawyer to protect your rights, negotiate with Revenu Québec, and prevent financial or legal consequences.

This case study shows how legal assistance transformed a high-risk Revenu Québec audit into a successful outcome and how businesses can use legal representation strategically.

Legal and Regulatory Framework

Tax lawyers intervene under authority set by:
• the Quebec Taxation Act
• the Excise Tax Act
• the Act Respecting the Ministère du Revenu
• administrative and litigation rules for objections and appeals

Revenu Québec agents have the legal right to:
• request documents
• review books and systems
• propose reassessments
• charge penalties and interest

Tax lawyers ensure these powers are exercised appropriately and that the taxpayer’s rights are respected.

The Situation: A Business Facing a Severe Audit

A Montreal-based service business received a verification notice requesting:
• three years of GST/QST filings
• ITCs/ITRs documentation
• sales records
• bank statements
• contracts and invoices

After initial correspondence, the auditor escalated concerns:
• unexplained deposits
• incomplete invoices
• large input tax claims
• potential “false ITCs”
• mismatched POS and bank deposits

The business risked a reassessment exceeding $45,000.

Why a Tax Lawyer Was Needed

The CPA prepared documentation, but the situation required a lawyer because:
• the auditor questioned the taxpayer’s intent
• penalties such as gross negligence were threatened
• the auditor misapplied certain legislative provisions
• communication became adversarial
• the reassessment letter hinted at potential litigation

Tax lawyers protect the client when the case becomes legal rather than purely financial.

What the Tax Lawyer Did

1. Took control of communication

All correspondence was redirected to the lawyer, preventing misstatements from the taxpayer.

2. Challenged incorrect assumptions

The lawyer demonstrated that:
• deposits were shareholder loans
• input credits matched supplier records
• business intent was legitimate
• no negligence occurred

3. Forced Revenu Québec to follow procedural rules

The lawyer required the auditor to:
• justify each adjustment
• respect taxpayer rights
• disclose computational errors

4. Provided legal arguments

Citing jurisprudence, the lawyer argued against:
• mischaracterized transactions
• incorrect denial of ITCs/ITRs
• unreasonable penalty proposals

5. Negotiated a resolution

By presenting a well-supported rebuttal, the lawyer:
• eliminated penalties
• reduced the reassessment
• resolved all disputed items
• closed the audit with no further action

The taxpayer paid $0 in additional taxes.

Outcome

Thanks to legal intervention:
• the audit closed with no penalties
• the proposed $45,000 reassessment was cancelled
• Revenu Québec accepted all ITCs/ITRs
• the business avoided litigation
• financial stability was protected

Real Lessons for Businesses

• Tax lawyers are essential when audits escalate to legal-risk territory
• CPAs handle documentation; lawyers handle disputes and rights
• Early intervention prevents major financial consequences
• Rights-based arguments carry weight in audit negotiations

Common Questions

Do I always need a lawyer for an audit?
Not only when penalties, misinterpretation of law, or adversarial communication arise.

Can a lawyer stop a reassessment?
They can dispute, negotiate, and challenge improper adjustments.

Can I hire both a CPA and a lawyer?
Yes CPAs handle numbers; lawyers handle legal issues.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal works alongside tax lawyers when required to defend clients against complex Revenu Québec audits, ensuring strong documentation, effective legal strategy, and full protection of your financial rights.