Tax agency mailing mistake leads to huge tax bill

The owner of a small construction business in B.C. says a series of mistakes by the Canada Revenue Agency (CRA) has left him with a $500,000 personal tax bill he says he doesn't owe.

Canada Revenue Agency mailed audit notices to non-existent address

BY KATHY TOMLINSON — The owner of a small construction business in B.C. says a series of mistakes by the Canada Revenue Agency (CRA) has left him with a $500,000 personal tax bill he says he doesn't owe.

"They can royally screw up and they are not accountable," said Dennis Collins. "That doesn't make any sense to me at all."

Collins said he's worked hard and paid his taxes all his life. He also considers himself a stickler for tax rules — never taking cash under the table or making GST deals. About $500,000 flows through Collins's business account each year, but he said most of that goes to pay for construction materials and other expenses. Collins claims less than $50,000 in personal income annually.

Huge bill could leave taxpayer penniless

If he had to pay $500,000 to Ottawa, he said it would wipe him out completely.

"They [the CRA] would have my house and property, and I would still owe money. And then I'd have to go start again."

In August of 2006, auditor Johnny Jagpal, from the CRA's Verification and Enforcement Division in Vancouver, sent Collins a letter, informing him he was being audited. Collins said he told Jagpal that all of his paperwork was with his accountant, Dave Hansen, in North Vancouver, and the audit would have to be done there.

Like any taxpayer, Collins has the right to have his accountant act as his direct representative with CRA and he asked Jagpal to contact Hansen to make an appointment.

"Hell — I am a builder, a carpenter," said Collins. "That's what I pay my accountant for."

Hansen said he heard nothing from Jagpal until February 2007, when the auditor called requesting information. Hansen said he called him back —twice — during the next few weeks, to tell him he was working on getting the paperwork together.

"I never heard from the auditor again," said Hansen. "If they are going to do anything, they issue you a proposal. They contact you. They do something. In this case nothing happened. If it had come to me, it would have been handled right away. And they would have been in here doing that audit. But we never got anything."

Auditor sent letters to non-existent address

Records show the auditor then started mailing letters addressed to Collins — not the accountant — to a non-existent mailing address in Pemberton, B.C., with the street name misspelled. Collins says it appears that Jagpal found the address that he used, 7844 Pemberton MEDWS Rd., in a telephone directory. The street name address is misspelled exactly the same way in the Canada 411 directory. Collins's street address is 7844 Pemberton Meadows Rd., but his mail is not delivered there.

Collins said the CRA had his proper mailing address — a rural route postal address — in its system and have had it for years. Hansen said the auditor's supervisor later told him that for some reason, Jagpal had "overridden the system" instead of using the address on file.

"I had no chance to prove that I was clean because he didn't show up to do an audit," said Collins. "Then, he starts mailing me stuff to the address that doesn't exist."

In those letters Collins did not receive — dated June and August of 2007 — the CRA stated, "we have completed our audit review." The letters also informed him CRA was disallowing all the business expenses Collins claimed for 2004 and 2005 — because he didn't provide them with information.

"Since you did not keep the proper supporting information and/or failed to provide us with the proper supporting information to verify the expenses and input tax credits claimed, the amounts were disallowed for the audit period."

Taxpayer penalized

Eventually, in February and March this year, notices of the reassessments were sent to the right places — the accountant’s office and to the correct postal address in Pemberton, B.C.– telling Collins he owed the taxman $493,467 plus $66,612 in GST.

"They have taken his gross revenue and denied all of his expenses incurred.  Wages. Sub-contract labour, materials that he's bought. Everything," said Hansen. "I think [the] CRA is grossly incompetent. If you can't use the proper mailing addresses that are provided to you, why do you even have a job?"

"If they can do this — if they can just come along and slam you with all this for no good reason that I can see," Collins asked, "where is the incentive to keep on working and trying to stay ahead?"

Hansen said he was told Collins's only recourse was to file an appeal, which he has done.That will likely cost him several thousand dollars in accountant fees and, even if he wins, Collins fears that may not wipe out all the penalties and interest he has incurred.

"Are they eventually going to say — well, we really screwed up here and you know this is stupid, but then say, 'you still owe $35,000 in interest' or something like that?" Collins asked.

No comment from tax agency

The Canada Revenue Agency refused to comment on this case, citing taxpayer confidentiality.

"It's serious — and pretty common," said Don Cayo, a columnist with the Vancouver Sun, who has written numerous columns on taxpayers going through disputes with the CRA.

Cayo said that despite the new CRA Ombudsman and the "taxpayer bill of rights" brought in by the federal government, he sees no evidence that the agency is becoming more accountable for its mistakes.

"Somebody with great authority should be looking at these issues and saying, 'That is stupid. That's not fair. That's not right. That's not consistent," Cayo said.

Erroneous assumptions made by individual auditors are often impossible for the taxpayer to reverse, he said, without spending thousands of dollars on appeals or court challenges.

"I guess these guys can be wrong but never admit to it," said Collins. "Whereas I would. Which is the difference between them and me." 

Hansen said he is still optimistic.

"Once we appeal and go through the process, I hope we're going to find somebody with a bit of brains and some common sense who is going to sit down and understand the travesty of what has happened here."