The Role of a Tax Litigator During a Corporate Audit

A corporate tax audit is not merely an accounting exercise. It is a structured adversarial process that can evolve—sometimes quickly—from information gathering to reassessment and, ultimately, litigation. In that environment, the involvement of a tax litigator is not premature. Rather, it is totally strategic.

Protecting the Record from Day One

Every corporate audit creates a documentary record. Information requests, interviews, voluntary disclosures, working papers, and internal correspondence may later form the evidentiary foundation of a reassessment or a tax court trial.

A tax litigator approaches the audit with a disciplined focus on the future record by:

  • Ensuring responses are accurate but not overbroad

  • Managing the scope of document production

  • Framing legal positions clearly and consistently

  • Identifying issues that could later become grounds for appeal

Audits are won and lost in the paper trail. Early legal oversight reduces the risk of inadvertent admissions or unhelpful narratives becoming embedded in the file.

Defining the Legal Issues Early

Corporate audits often begin with broad queries but narrow over time to specific technical issues—GAAR, transfer pricing, shareholder benefits, source versus capital, income characterization, or valuation disputes.

A tax litigator:

  • Analyzes the statutory framework from the outset

  • Identifies the Crown’s likely theory of reassessment

  • Assesses litigation risk and burden of proof

  • Develops a coherent legal narrative aligned with existing jurisprudence

This forward-looking analysis ensures that the company’s audit strategy aligns with potential objection and appeal strategy.

Managing Auditor Interactions Strategically

Auditors perform an important function, but their mandate is administrative and not adjudicative. Their interpretations may not reflect the full legal landscape.

Counsel involvement can:

  • Clarify misunderstandings of law

  • Ensure technical positions are properly supported

  • Maintain professional boundaries during interviews and information requests

  • Escalate issues appropriately within the Agency where necessary

Professional, structured engagement often prevents unnecessary reassessments driven by incomplete legal analysis.

Preserving Privilege

One of the most overlooked risks during a corporate audit is the erosion of solicitor-client privilege.

A tax litigator helps:

  • Structure communications to preserve privilege

  • Distinguish between accounting advice and legal advice

  • Protect sensitive internal analyses

  • Avoid accidental waiver through disclosure

Privilege, once lost, cannot be recovered. Early attention is critical.

Preparing for Objection and Appeal

Not every audit results in litigation. But every audit should be conducted as if litigation is possible.

A litigator will:

  • Anticipate evidentiary gaps

  • Identify potential witnesses

  • Consider expert evidence early (e.g., valuation, transfer pricing)

  • Frame positions in a way that transitions seamlessly into a Notice of Objection, if necessary

This continuity between audit and appeal phases creates strategic coherence and often strengthens the company’s negotiating posture.

Reducing Business Disruption

Corporate audits consume management time and internal resources. When handled reactively, they can become distracting and destabilizing.

Counsel involvement provides:

  • Centralized coordination of responses

  • Clear timelines and communication protocols

  • Strategic filtering of issues

  • Measured escalation where appropriate

The result is controlled engagement rather than prolonged uncertainty.

Conclusion

A corporate tax audit is not simply about reconciling numbers. It is about legal interpretation, evidentiary positioning, and strategic risk management. The role of the tax litigator is not to inflame the process but to bring structure, discipline, and foresight to it. In many cases, early legal involvement does not make an audit more adversarial. It makes it more efficient, more focused, and ultimately more predictable.