Two electronic tools used extremely commonly in business are e-mail and excel spreadsheets. In this article we comment how Inland Revenue uses (or refuses to use) them. We also include a document (obtained following an Official Information Act request) that sets out policies applied by SOME parts of Inland Revenue.

Email

Background

E-mail has been a common communication tool since the mid- 90s, and these days postal services are being reduced and even eliminated altogether because the majority of paper correspondence has been replaced by electronic correspondence.

Not from Inland Revenue however.

Since the mid to late 90s, Inland Revenue has had various working groups supposedly researching how it can use e-mail to communicate with customers.

For what they have achieved in the last decade and a half, they might as well have spent the time at the golf course.

Alleged security issues

Inland Revenue raises a number of reasons why it is reluctant to allow outwards e­mail correspondence.

The most common excuse is loosely described as “security”, and “protection of taxpayer specific information”. I consider these are complete nonsense.

IRD will happily send paper correspondence by mail or by courier. From time to time this goes astray, I’m sure many agents and taxpayers have experienced IRD putting mail in the wrong envelope and sending to someone unrelated. The person who opens it is immediately privy to the contents.

Inland Revenue is also happy to distribute any amount of information by fax. If an IRD staff person gets one digit wrong, and the phone number happens to correspond with someone else’s fax, once again it goes to a random recipient. Faxed documents are also generally lower image quality then paper or e-mail.

E-mail can take care of both those aspects. Firstly, the document image can be just as high quality as the original paper, if indeed it ever was paper. Secondly, by the simple expedient of securing with a password agreed between sender and recipient, if the some reason the e-mail does go astray, it is unlikely to be able to be read by the wrong person, or if it can, certainly less likely than if the document was sent by fax or post.

Legislation

We understand Inland Revenue has approached the Privacy Commissioner to see whether email would somehow breach privacy standards. I cannot see how a document sent by e-mail would be breaching more privacy than a document sent by mail or fax, particularly if by explicit permission of sender and recipient.

Inland Revenue has even got a specific legislative change to ensure that it was able to send information electronically. What nonsense, but at least it got rid of another IRD excuse.

Implementation of sorts

Inland Revenue then finally accepted that it is legally able to send documents by e-mail. IRD takes care of further concerns by ensuring that the taxpayer gives permission, and the taxpayer takes responsibility should a document go astray. But then, instead of rolling this out through the entire organisation, the Commissioner has devolved the decision back to individual teams, with the effect that some IRD staff will happily e-mail, some IRD staff will only e-mail if we press the point, and some staff refuse point-blank.

When IRD staff refuse to send e-mail or provide a spreadsheet, they refer to “internal policy”, but they cannot or will not quote the details of such policy.

Even when staff will send e-mail correspondence, they still put bizarre barriers in the way, such as claiming that every e-mail must have the subject “in confidence” instead of a meaningful subject line.

IRD’s secure “correspondence” facility

IRD does provide a facility for secure electronic correspondence but it cannot accept attached documents, can only take a limited amount of strictly unformatted plain text, and cannot be addressed to a specific person.

Electronic spreadsheets

Another very common business tool is the use of Excel spreadsheets.

In an audit scenario, it is very common for IRD to undertake detailed calculations to establish a taxpayer’s liability, which depending on the basis may be broadly correct, maybe a little on the high side, or may be completely specious.

IRD will sometimes back this up with a spreadsheet. However IRD staff are extremely reluctant to provide the calculations by way of an electronic spreadsheet, instead only posting paper or faxing a pdf document.

It is easy enough for an advisor to reproduce such calculations if there are only a few numbers to enter and add or subtract.

Sometimes however, these calculations can extend over many income years, and contain quite detailed calculations of assets and liabilities, income and expenditure etc., and may involve thousands or hundreds of thousands of dollars.

In an extreme case, Inland Revenue issued its findings on 15 December, when pressed, backed up its position with 20 A4 pages of income tax calculations, but with font so small that it was barely legible, and told the taxpayer they must respond either immediately or by 14 January, thus denying them any opportunity to have their accountant review the matters. The inspector then refused to provide the calculations by way of electronic spreadsheet, forcing us to spend many hours scanning and entering data and calculations manually. This imposed significant unnecessary compliance costs for absolutely no good reason.

As it turns out, IRD’s calculations had some fatal errors. IRD had manipulated some of the formulas, had failed to account for GST and other tax types, and had failed to make any mention of interest. If the taxpayer had signed the ‘agreement’ they would have been up for more than 2.5 x the amount IRD pretended to ‘agree’. Eventually we were able to reach an appropriate settlement, but IRDs behaviour in this instance was absolutely inexcusable.

In another recent example, IRD issued an “agreed adjustment” calculation, provided only 12 days to sign, and only provided in spreadsheet form when pressed. Again our intervention lead to an appropriate (and much lower) settlement, albeit with some unnecessary time and cost.

Debt collection staff will issue demands for hundreds of thousands or even millions of dollars of tax, but will not provide the information in spreadsheet form so we can check calculations (which from time to time contain errors).

IRD internal policies

Having been turned down so many times, we had to revert to a demand under the Official Information Act. To our surprise the policy that was provided (having taken 15 years to develop) is actually very well written. It addresses consent from the taxpayer, drafting and administration processes, requesting confirmation of receipt (oh that IRD did the same for us!), release of working spreadsheets to facilitate collaboration, enhancement and improvement of processes etc. All great stuff.

But then, reading through the obscure acronyms at the beginning of the policy document, it turns out that it only applies to some parts of IRD. In a recent media release IRD claimed that the decisions were made on a case by case basis, but this is quite misleading, if you are dealing with IRD debt management they point blank refuse to provide a spreadsheet.

Conclusion

Regrettably, both the email and spreadsheet issues appear to arise from a failure of IRD to develop sensible policies within a reasonable timeframe. When IRD does develop policies, it does not implement them nationally, instead leaving individual business units to make their own decisions and leaving relatively junior staff to come to their own conclusions.

IRD of course strongly encourages taxpayers to provide electronic data. IRD would be very distressed if for example taxpayers refused to lodge electronic tax returns, and instead submitted hand written returns, perhaps after spilling a cup of coffee over some of the numbers.

In the next couple of months we will have a new government, a new Commissioner of Inland Revenue, and hopefully a renewed focus on encouraging appropriate business standards in government departments. Maybe we will see some very overdue improvement.

IRD email policy