Why Aren’t There More Court Cases?

There are about 80,800 restaurants in Canada (CRFA), and about half are audited every four years.  That’s a lot of restaurants being audited, and you just know that the majority of them receive reassessments at the end of each audit.

Rather interestingly, there are only about 10 significant court cases involving restaurants that had been audited using the mark-up methodHow can this be?

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A False Sense of Security

Many restaurant owners think they’re protected from the tax auditors, simply because they have a good accountant.  While that’s true in some cases, just about every restaurant that gets hit with a tax audit reassessment (and usually a large one at that) had a “good accountant”!

In Canada, every restaurant that appealed tax audit reassessments in court had an accountant.  In the U.S., many states publish details of tax appeals by restaurants (informal tribunal appeals, roughly equivalent to Canadian appeals by Notice of Objection).  There are literally thousands of cases and virtually every one had an accountant.  In the vast majority of cases, the restaurants lost their appeals.  I’m sure most of these restaurants thought that their accountant would protect them from these tax reassessments.

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