SARS Verification Audit Reversed After Section 11 TAA Notice

One of the recurring themes emerging from our recent webinars hosted through the tax specialist team under the leadership of Dr Daniel N. Erasmus (affiliated to Regan van Rooy) at TaxRisk.co.za is the growing concern amongst taxpayers and practitioners regarding the manner in which certain SARS verification audits are evolving into full-blown assessments without proper procedural compliance.

The case discussed in this article arose after one of our webinar participants contacted TaxRisk.co.za seeking assistance on behalf of a taxpayer facing what appeared to be a procedurally defective revised assessment. Dr Daniel N. Erasmus and his team (The Team) were engaged by TaxRisk.co.za to assist.

The matter ultimately ended successfully before litigation became necessary. Following the delivery of a detailed Section 11 notice in terms of the Tax Administration Act, SARS withdrew the disputed 2017 assessment and redirected its attention to the correct 2016 assessment period. Another verification audit dispute was resolved without the need for High Court proceedings.

This article explains the practical tax dispute assistance provided by The Team, the legal principles involved, and why this case highlights the importance of early intervention during SARS verification processes.

The underlying legal advice and Section 11 notice formed the basis of the intervention.

The Initial Problem: A Verification Audit Turns Into a Major Tax Debt

The taxpayer advisor approached TaxRisk.co.za, who requested Dr Daniel N. Erasmus to assist, after SARS issued an additional estimated assessment for the 2017 year of assessment against a property trust in South Africa.

The assessment was severe. SARS alleged that the trust had failed to disclose a taxable capital gain and proceeded to raise an estimated assessment that included:

• taxable income of approximately R928,000;
• tax of approximately R380,480;
• interest approaching R300,000; and
• a total liability exceeding R670,000.

What made matters more alarming was that SARS had already begun debt collection steps while simultaneously indicating that the matter remained under review. Threats of civil judgment and third-party appointments had already emerged.

The taxpayer advisor explained that the matter appeared to originate from an old verification process dating back to 2022, during which SARS had queried a transaction involving immovable property.

At first glance, the taxpayer feared the matter would require a lengthy objection and appeal process. However, once The Team reconstructed the factual timeline and examined the assessment history carefully, it became apparent that the dispute was fundamentally procedural and administrative in nature. A wrongful revised assessment had been issued by SARS without a letter of findings.

Reconstructing the Facts

One of the first steps undertaken by The Team was a full reconstruction of the factual matrix from the available documents.

This proved critical.

The review established that the underlying property transactions had in fact occurred during the 2016 year of assessment — not 2017 as SARS alleged. Two properties had been sold and transferred during February 2016.

The annual financial statements further confirmed that:

• the proceeds were properly reflected;
• the base cost of the properties existed and had not been zero;
• the actual capital gain was comparatively small; and
• the gain had vested in beneficiaries rather than remaining taxable in the trust itself.

This was a crucial discovery because the SARS estimated assessment effectively ignored all of these factors. SARS had:

• taxed the wrong year;
• ignored the base cost entirely;
• treated the proceeds as pure gain;
• ignored beneficiary vesting; and
• imposed tax in the trust itself.

The team also identified another important feature of the case.

SARS had always known there was a potential issue relating to the 2016 return. The original 2017 assessment itself reflected that the 2016 return remained outstanding. Yet SARS nevertheless continued verifying 2017.

This contradiction later became one of the cornerstones of the procedural challenge.

The Legacy Problem Created by Previous Advisors

Another recurring problem seen in many verification disputes is that the taxpayer’s current advisors often inherit historical compliance issues created by prior accountants or tax practitioners.

That was exactly what occurred here.

The 2016 return had not originally been submitted by the prior accountants. When the new taxpayer advisor eventually became involved, steps were taken to regularise the position by submitting the outstanding 2016 return.

Importantly, SARS then issued a 2016 assessment correctly reflecting:

• the capital gain;
• the vesting in beneficiaries; and
• no tax liability in the trust itself.

This development became legally decisive.

SARS now effectively had two contradictory positions:

1. the 2016 assessment correctly recognised the transaction; and
2. the 2017 estimated assessment incorrectly taxed the same transaction again.

The Team immediately identified that this created mutually destructive assessments which could not coexist lawfully.

The Verification Audit Never Properly Ended

The Team then turned its attention to the actual audit process itself.

The timeline revealed that SARS had initiated the verification process in September 2022. Additional requests for documents followed years later during 2024. Various submissions were made by the taxpayer advisor, including repeated uploads and supporting documents.

However, despite the ongoing exchanges, the verification process was never properly finalised in terms of section 42 of the Tax Administration Act.

This became highly significant from an administrative law perspective.

In many instances, taxpayers assume that verification disputes must automatically proceed through the ordinary objection and appeal route. However, where SARS fails to comply with procedural fairness obligations, or where assessments are raised irrationally or unlawfully, the matter may instead become reviewable under administrative law principles.

The specialist team identified several procedural concerns:

• SARS allegedly instructed the taxpayer not to object while the matter remained under review;
• the taxpayer continued cooperating and submitting documentation;
• SARS continued requesting or receiving material; yet
• debt enforcement nevertheless proceeded.

This created a classic procedural fairness problem, read with a failure to issue a proper letter of findings.

The Importance of Legitimate Expectation & Letters of Findings

One of the important principles discussed during many TaxRisk.co.za webinars is the doctrine of legitimate expectation and section 42 letters of findings.

In simple terms, where SARS creates a reasonable expectation through its conduct, representations, or instructions, taxpayers may be entitled to procedural protection if SARS later acts inconsistently with those representations. SARS must also issue a letter of findings at the conclusion of an audit. Failure to do so is fatal for SARS in issuing any ensuing revised assessments.

In this matter, the taxpayer advisor had allegedly been instructed:

• to submit the 2016 return;
• to upload supporting documents into the verification case; and
• not to object at that stage.

The taxpayer followed those instructions.

The specialist team therefore argued that SARS could not simultaneously:

• keep the matter under review;
• encourage continued engagement; and
• aggressively enforce the assessment as though the dispute had already been finalised.

This was framed as a form of procedural unfairness and abuse of administrative power.

Why the Section 11 Notice Was Critical

Rather than immediately launching litigation, The Team recommended an incremental escalation strategy.

This involved preparing a detailed formal notice to SARS in terms of Section 11 of the Tax Administration Act setting out SARS’ procedural defects.

The notice systematically identified the defects in the assessment, including:

1. the incorrect tax year;
2. failure to recognise base cost;
3. failure to account for beneficiary vesting;
4. continued reliance on an estimated assessment despite full disclosure;
5. failure to finalise the verification process properly;
6. failure to issue a proper letter of findings before issuing revised assessments; and
7. unlawful debt collection while the matter remained unresolved.

Importantly, the notice also placed SARS on formal notice that failing withdrawal of the revised assessment, High Court review proceedings would follow.

The tax risk policy issued by www.TaxRisk.co.za covers the costs of the taxpayer’s tax advisors and the costs of the legal team instructed to represent the taxpayer in any such High Court and/or objection and appeal processes, at a meagre cost starting at R265 per month.

Details can be obtained at www.TaxRisk.co.za.

This approach forms part of a broader strategic philosophy often discussed during TaxRisk.co.za seminars and webinars, offered on a monthly basis. Recordings of the most recent webinars are available at www.TaxRisk.co.za.

Many verification disputes can be resolved without litigation if the procedural defects are identified early and articulated correctly. In numerous matters, once SARS realises that a taxpayer is properly advised and prepared to pursue judicial review proceedings, the dispute frequently moves toward resolution.

That is precisely what occurred here.

The Outcome

Before any High Court application became necessary, SARS withdrew the disputed 2017 assessment.

Attention was then redirected to the correct 2016 year of assessment, which had already been regularised and correctly assessed.

The aggressive debt collection pressure ceased.

The taxpayer avoided:

• unnecessary litigation costs;
• prolonged objection and appeal proceedings;
• potential civil judgment enforcement; and
• substantial tax exposure arising from an incorrect estimated assessment.

Most importantly, the matter demonstrated once again that procedural intervention during the verification stage can materially alter the trajectory of a tax dispute.

Lessons for Taxpayers and Advisors

Several important lessons emerge from this case.

1. Verification Audits Must Still Be Lawful

Many taxpayers underestimate the significance of verification audits because they appear informal or administrative in nature.

However, verification processes remain subject to the principles of legality, rationality, and procedural fairness.

Where SARS fails to follow proper statutory procedures, taxpayers may possess review remedies beyond ordinary objections and appeals.

2. Estimated Assessments Are Not Immune From Challenge

Section 95 estimated assessments are often perceived as difficult to attack.

However, where SARS continues relying on an estimate after receiving the relevant information and documentation, the continued reliance on the estimate itself may become irrational or unlawful.

That issue became central in this dispute.

3. Contradictory Assessments Create Significant Legal Problems

The existence of two inconsistent SARS assessments concerning the same underlying transaction created a major weakness in SARS’ position.

The 2016 assessment effectively undermined the 2017 estimated assessment.

Careful reconstruction of assessment histories often reveals similar inconsistencies.

4. Early Specialist Intervention Matters

Perhaps the most important lesson is the value of early intervention.

Had the taxpayer merely accepted the assessment and proceeded down a conventional objection route without identifying the procedural flaws, the matter may have evolved into years of expensive litigation.

Instead, a targeted procedural strategy achieved resolution at a far earlier stage.

The Broader Context

This matter reflects a broader pattern increasingly observed by Dr Daniel N. Erasmus and his tax specialist team (affiliated with Regan van Rooy). More information about the tax risk policy is available at www.TaxRisk.co.za.

Verification audits frequently begin as relatively narrow requests for information but later evolve into substantial assessments, often before taxpayers fully appreciate the procedural consequences.

One of the recurring themes emphasised during TaxRisk.co.za webinars is therefore the importance of:

• carefully managing audit communications;
• preserving procedural rights from the outset;
• documenting SARS representations and instructions;
• monitoring section 42 compliance; and
• escalating matters strategically before disputes become entrenched.

The successful outcome in this matter demonstrates that many disputes can still be resolved before litigation becomes necessary when taxpayers and advisors act proactively and strategically.

Another wrongful assessment withdrawn.

Another taxpayer is protected from unnecessary tax enforcement.

And another example of how procedural tax strategy can fundamentally change the outcome of a SARS dispute, with reliance on the tax risk policy from www.TaxRisk.co.za from as little as R265 pm covering the costs of your tax advisor and any additional legal costs necessary to address wrongful revised assessments from High Court applications to the objection and appeal processes in the Tax Court.

The tax risk policy covers tax risk exposure in South Africa, including transfer pricing audits and international tax issues with a South African tax exposure.

An application can be made on a case-by-case basis to arrange tax risk cover beyond South Africa by contacting Dr Daniel N. Erasmus at Daniel.n.erasmus@me.com for an assessment of what is possible to cover tax risks beyond South Africa.

Dr Daniel N. Erasmus who leads the tax specialist team at www.TaxRisk.co.za, is affiliated to Regan van Rooy, a tax specialist firm addressing tax disputes on behalf of taxpayers in respect of transfer pricing and international tax audits and disputes in South Africa, Sub-Saharan Africa, and beyond.