The way a tax audit ends is prescribed in Article 74-11 of the General Act of National Taxes,“Procedures at the Conclusion of an Audit.”It is.

It is useful to understand the three ways an audit can end and that the article also sets outthe conditions for a further audit after the first has ended.Both are covered by the provision.

Three ways an audit can end

1. Where reassessment, determination, or similar action is not considered necessary

Under paragraph (1), if an on-site audit finds no need for reassessment, determination, or similar action, the district director of the tax office or other authority mustnotify the taxpayer in writing that such action is not considered necessary at that time.This notification must be given.

This is commonly called a notice of acceptance. There are two key points.

• written notification.It must be in that form,
• 「and it is limited to “at that time.”That qualification matters.

Paragraph (1) applies where this is the result ofan on-siteaudit concerning national taxes. The written notice is sent to the taxpayer who “was the subject of questioning, inspection, or similar measures in that audit.”

2. Where reassessment, determination, or similar action is considered necessary

Under paragraph (2), in this case the official mustexplain the audit findingsto the taxpayer.

The parenthesis specifies that this includes “the amount for which reassessment, determination, or similar action is considered necessary and the reasons.” The explanation must cover the reasons as well as the amount.

The provision says “explain” and does not require writing. This contrasts with paragraph (1), which expressly requires a written notice of acceptance.

3. Encouraging an amended return

Under paragraph (3), when giving the explanation under paragraph (2), the official mayencourage the filing of an amended or late return.That is the rule.

In that case, the following explanation and written document are mandatory.

The official must explain that if the taxpayer files a tax return concerning the audit findings, the taxpayer cannot file an objection but may request a correction, and must provide a written document stating this.

This statutory structure is important. If you file an amended return,you can no longer file an objection.However,you may request a correction.Officials must explain both points and provide them in writing.

Whether to accept the request for an amended return or decline and contest a reassessment is the choice arising when this document is received.

The procedures can also be carried out through the tax agent

Paragraph (4) provides that where a taxpayer questioned or inspected in an on-site audit has a tax agent,with the taxpayer's consent,the notifications, explanations, and documents under paragraphs (1) through (3) may be provided to that agent instead.

The wording is “instead.” They are not necessarily provided to both.

Another audit can follow after the first ends

Paragraph (5) addresses a point often overlooked in practice.

Even after a notice of acceptance, the filing of an amended or late return following explanation of audit findings, or a reassessment, determination, or similar action, an official may conduct further questioning or inspectionwhere newly obtained information indicates a discrepancy or violation.Further questioning, inspection, or similar measures are then permitted.

Thus, a notice that the audit has “ended” does not permanently bar another audit of that tax and period. Paragraph (1)'s qualification “at that time” corresponds to paragraph (5).

The requirement is that “newly obtained information indicates a discrepancy or violation.” Whether it is satisfied becomes an issue when a further audit actually occurs.

Common practical questions

• What if the explanation differs from your understanding? Because an oral explanation suffices under paragraph (2), keeping a record can affect what happens later.
• Should you file an amended return or accept a reassessment? The answer depends on whether you intend to contest the matter. The document under paragraph (3) is provided to inform that decision.
• How should you handle an audit that has faded away without a notice of acceptance?

This choice can sometimes have irreversible consequences. Consult us before signing an amended return.

Legal basis

• Article 74-11 of the Act on General Rules for National Taxes (Procedures upon Completion of Investigation)

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