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Redress for Taxpayers (Special Report)

Introduction

Introduction

The names used in this special report have been changed to protect the identities of the complainants.

The report concerns the actions of the Revenue Commissioners (the Revenue) relating to two issues:

(i) time limits on retrospective refunds of tax wrongly collected and
(ii) compensation for loss in value where tax refunds are made in cases where the overpayments of tax were the result of maladministration.

I received two complaints in relation to the first issue. Mrs Maria Kelly and Mrs Phyllis Nolan are both in receipt of public service occupational widow's pensions. Following a 1988 High Court decision, which held that the children's portion of a Garda Síochána widows pension should not be taxed as the income of the surviving parent, both women claimed refunds of the tax incorrectly deducted from them. In both cases, Revenue refused to allow a full refund of the tax and limited the refund to what Revenue claimed was a statutory limit of five years. The two widows complained to me that they had been wrongly denied full refunds of tax - four additional years worth of refunds in Mrs Nolan's case and three additional years in the case of Mrs Kelly. Both complainants also claimed compensation for loss in value of the refunds denied them and of the amounts actually refunded to them. In addition, six other complainants approached me in relation to this second issue. Each claimed that a tax refund properly owing to them had been wrongly retained by Revenue for a lengthy period. Revenue had refused to pay them interest or compensation for loss in value because there was no specific statutory provision for the payment of such interest in their particular circumstances.

There are six chapters in this report:

• Chapter 1 examines the role of the Ombudsman and the courts, and discusses the question of administrative accountability of public bodies. I have found it necessary to do this because of an implicit questioning of my role in the Revenue's response to a draft of my investigation report. It also examines the discretionary decision-making powers of the Revenue under the care and management provisions of the Tax Acts.
• Chapter 2 deals with the legal background to time limits on retrospective refunds of tax made by Revenue.
• Chapter 3 deals with the legal background to the payment of compensation for loss in value of delayed refunds of tax.
• Chapter 4 examines the Revenue's refusal to make a full retrospective payment of income tax to two widows.
• Chapter 5 examines the Revenue's refusal to compensate the two widows and six other taxpayers for loss in value of tax refunds.
• Chapter 6 contains my findings and recommendations, the Revenue's response to my recommendations and my response to Revenue's refusal to accept my recommendations in full.

In accordance with Section 6(6) of the Ombudsman Act, 1980, I gave a copy of the original draft of my investigation report to the Revenue in order to allow it to make representations to me in relation to any finding or criticism adverse to it in the draft report. The then Chairman of the Revenue Commissioners sent me a detailed response, the full text of which is in Appendix 1, which I considered very carefully. While I did not find it necessary to alter the substance of the draft investigation report in light of the Revenue response, I restructured the draft report and included my comments on the arguments put to me by the then Chairman in the appropriate sections of the report. Before making any recommendations arising out of the investigation I decided, again in accordance with Section 6(6) of the Ombudsman Act, 1980, to give a copy of the revised draft investigation report to the new Chairman of the Revenue Commissioners. I did not find it necessary to make any significant alteration to the report in the light of the Chairman's response which is at Appendix 2.

I sent my final investigation report with recommendations to the Revenue. Revenue accepted my first recommendation - that the two widows be paid the additional arrears due to them. With regard to my second recommendation, the Revenue also agreed, with certain reservations, to make refunds to others in situations similar to these two women. However, Revenue rejected my third recommendation, viz., that the two widows and six other complainants, whose tax rebates were also wrongly delayed, be compensated by Revenue for this delay. It also rejected my fourth recommendation, viz., the provision of compensation in four other cases where the examination of the complaint had been held over pending the outcome of the investigation. The Revenue told me that it could not accept these recommendations because of their wide-ranging implications. It also said that it lacked the legal authority to make such payments. I accept neither point and I informed the Chairman accordingly.

During my investigation I had repeatedly pointed out to the Revenue that it had conceded interest payments to another group of tax payers without specific statutory authority. I understand that the Revenue considered that a High Court judgement (Lawrence O'Rourke v The Revenue Commissioners [1996] ITR p81) could be extended to this group, and this was done.

The Revenue has also argued that my frequently expressed view - that like cases should be treated in like manner - is the chief reason for rejection of this recommendation because the cases themselves could not be "ring-fenced". This is disingenuous on the Revenue's part. My recommendations are restricted to three specific groups - the eight complainants, other public service widows who were affected by the O'Carroll judgement in the same way as Mrs Kelly and Mrs Nolan and four other cases where a complaint had been made to my Office and where the examination had been held over pending the outcome of this investigation. I am heartened, however, to see that this principle of equal treatment for people in similar circumstances is uppermost in the Revenue's mind, despite its continuing refusal to put it into practice.

The fifth recommendation is that the Revenue should introduce a scheme to compensate taxpayers for delays in granting tax refunds because of some fault on the Revenue Commissioners' part. This has also been rejected but with the assurance that the question is under review. The Revenue also make the point that such a scheme should be placed on a statutory basis - a matter which, it points out, is the responsibility of the Minister for Finance in the first instance. I am aware of the Revenue Commissioners' role in this process, but I do not accept that it is the passive role which the Revenue claim it to be.

In view of Revenue's rejection of three of my recommendations I have decided to make a special report to the Oireachtas. I do this, firstly, because I believe that Revenue is not justified in refusing to compensate the complainants who were the subject of my investigation. My reasoning in this regard is outlined in the body of this report. Secondly, I believe that, in order to prevent similar complaints arising in the future, Revenue should introduce a general scheme to compensate taxpayers where it is solely or significantly to blame for delay in refunding tax overpayments.

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