Tax Audits and Appeals Against Reassessments: Deadlines for Requests for Reinvestigation, Requests for Reconsideration and Tax Litigation

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

As a corporation tax audit draws to a close, the officials conducting the audit explain to the company the amounts for which they have found a reassessment should be made and the reasons, and as a rule recommend that the company file an amended return. If the company follows this recommendation and submits an amended return, it can no longer file an appeal regarding that tax amount, and to dispute it later, it has to start with a request for correction. If the company does not follow the recommendation, the district director of the tax office makes a reassessment. Within three months from the day after the date it receives the notice of reassessment, the company files either a request for reinvestigation or a request for reconsideration, whichever it chooses.

If the company is not satisfied with the National Tax Tribunal's decision on the request for reconsideration either, it can file an action for revocation within six months from the date it learns of the decision. Unless there is a justifiable reason, an appeal or action filed after the deadline is dismissed without its merits being examined. Whichever procedure the company chooses, the main material supporting its position will be what it explained and the documents it submitted at the audit stage.

The Audit Officials' Authority and the Records to Keep at the Audit Stage

Article 74-2, Paragraph 1 of the Act on General Rules for National Taxes (Japanese), referred to below as the "General Rules Act," provides that, where necessary for a corporation tax audit, officials of a tax office or other tax agency may question the corporation and inspect its books, documents and other articles. The officials may also ask for these articles to be presented or submitted. Failing to answer questions, giving false answers and failing without justifiable reason to comply with a request for presentation or submission are subject to penalties. The statutory penalty is imprisonment for up to one year or a fine of up to JPY 500,000 (Article 128, Items 2 and 3 of the General Rules Act). The National Tax Agency's FAQ on tax audit procedures (Japanese) explains that it does not intend to use the penalties as leverage to exercise this authority coercively, and that presentation and submission take place with the taxpayer's consent, based on the taxpayer's understanding and cooperation.

When a field audit is to be conducted, the district director of the tax office or other competent authority gives the corporation advance notice and, if the company's retained tax accountant acts as its tax representative, also notifies that tax accountant (Article 74-9, Paragraph 1 of the General Rules Act). The matters notified include the date, time and place at which the audit will begin, the purpose of the audit, and the tax items, periods, and books and documents covered. If the corporation gives reasonable grounds and asks for the date, time or place to be changed, the district director or other competent authority endeavors to consult with it (Paragraph 2 of the same Article). Where the district director or other competent authority finds, for example, that advance notice may facilitate illegal or improper conduct, the audit may also be conducted without advance notice (Article 74-10).

If, as a result of the audit, the officials find that a reassessment should be made, they explain the results of the audit, including the amount for which they have found a reassessment should be made and the reasons (Article 74-11, Paragraph 2 of the General Rules Act). According to the FAQ mentioned above, this explanation is given orally as a rule, and no document setting out the audit results is issued even if the taxpayer asks for one. When you receive the explanation, write down the amount and the reasons for each irregularity, and ask questions on the spot about any item whose reasons you do not understand.

The audit officials may compile what they have heard from the company's representative or the staff in charge into a record of questions and answers and ask for a signature and seal at the end. If the matter proceeds to a request for reconsideration, the record of questions and answers can become one of the pieces of evidence submitted by the original agency, such as the district director of the tax office who made the disposition (Article 96, Paragraph 2 of the General Rules Act). If you are asked to sign, read the record to check that it matches what you explained, and ask for corrections to any part where you answered by guesswork or that differs from your explanation. When you are asked about facts you do not remember clearly, telling the officials that you will answer after checking the company's records, rather than answering with guesswork mixed in, reduces the risk of a later conflict with what the record says.

To use them in later procedures to support its position, the company also needs to keep the following records on its side.

• For each audit day, the attendees and a summary of the questions and answers
• A list of the books and documents presented or submitted, and retained duplicates of the copies submitted
• The articles the company agreed to hand over for retention, and the document issued to it at that time (Article 30-3, Paragraph 1 of the Order for Enforcement of the Act on General Rules for National Taxes)
• The date and time of the explanation of the audit results, who gave it, and the amount and the reasons for each irregularity
• Where the contracts, internal approval documents, minutes and emails that show the substance of the transactions are kept

These records are used when comparing the reasons for the disposition written in the notice of reassessment with the explanation received during the audit. The grounds in a written request for reconsideration must make clear the company's position on the reasons for the disposition given in the notice (Article 87, Paragraph 3 of the General Rules Act). In a request for reconsideration, the company can also ask to inspect, or to be given copies of, documents such as records of questions and answers submitted by the original agency (Article 97-3, Paragraph 1). With its own records, the company can point out specifically where the entries in the record differ from the actual exchanges.

The Difference Between a Recommendation to File an Amended Return and a Reassessment

Article 74-11, Paragraph 3 of the General Rules Act provides that, when explaining the audit results, the audit officials may recommend that the taxpayer file an amended return. When making this recommendation, the officials must explain that if the taxpayer submits an amended return, it cannot file an appeal but can make a request for correction, and must issue a document stating this. The National Tax Agency's FAQ treats whether to follow the recommendation as a matter for the taxpayer's voluntary decision. It also explains that if the taxpayer does not follow it, a reassessment or other disposition will be made based on the audit results, but that the taxpayer will basically not be treated unfavorably for not following it.

An amended return is a return that the company files itself; it is not a disposition by the district director of the tax office. To dispute the tax amount in an amended return later, the company has to make a request for correction within five years from the statutory filing deadline. In doing so, it shows, by stating the reasons and circumstances in the written request for correction, that the calculation in the return did not comply with the provisions of the tax laws or that there was an error in the calculation (Article 23, Paragraph 1, Item 1 and Paragraph 3 of the General Rules Act). If the district director gives notice that there is no reason to make a reassessment (Paragraph 4 of the same Article), the company can file an appeal against that notice. The National Tax Tribunal also lists this notice among the dispositions subject to appeal (Japanese).

When a reassessment is made, the district director states the reasons for the disposition in the notice of reassessment. Article 74-14, Paragraph 1 of the General Rules Act excludes many provisions of the Administrative Procedure Act from application to dispositions concerning national taxes, but it does not exclude Article 14 of that Act, which requires the reasons for an adverse disposition to be presented. For corporation tax reassessments relating to blue returns, Article 130, Paragraph 2 of the Corporation Tax Act also requires the reasons to be stated in the notice of reassessment. The company can dispute the reassessment by identifying which parts of the stated reasons differ from the facts and which parts are wrong as an interpretation of laws and regulations.

The additional tax burden is usually the same whether the company files an amended return or receives a reassessment. Additional tax for deficient returns is imposed both on amended returns and on reassessments. The rate is 10% of the tax payable, and 15% on the portion exceeding the greater of the tax amount on the timely filed return and JPY 500,000 (Article 65, Paragraphs 1 and 2 of the General Rules Act). For an amended return filed after notice of an audit has been received, the rate falls to 5% only where the amended return was not filed in anticipation of a reassessment resulting from the audit (parenthetical clause in Paragraph 1 of the same Article). The National Tax Agency's administrative guidelines (Japanese) treat an amended return filed after the corporation has become aware that an audit has taken place, for example through an on-site examination or the pointing out of irregularities, as having been filed, in principle, in anticipation of a reassessment.

The two procedures also differ in when interest on refunds starts to accrue if tax that has been paid is later reduced. If a reassessment is revoked, interest is calculated from the day after the date the tax was paid (Article 58, Paragraph 1, Item 1(a) of the General Rules Act). If the tax amount in an amended return is reduced on the basis of a request for correction, interest is calculated from the day after the earlier of two dates. One is the date on which three months have passed from the day after the request for correction was made, and the other is the date on which one month has passed from the day after the reassessment reducing the tax was made (Item 2 of the same Paragraph).

If the authorities find that there was concealment or disguise, heavy additional tax, as a rule at 35%, is imposed in place of additional tax for deficient returns (Article 68, Paragraphs 1 and 4 of the General Rules Act). Because the assessment of an additional tax is a disposition separate from the amended return, the company can file an appeal against an assessment of heavy additional tax even after filing an amended return. The National Tax Tribunal's decision of September 21, 2018 (Japanese) concerned a case in which an assessment of heavy additional tax was disputed after an amended return had been filed. The corporation had filed the amended return after the audit officials pointed out issues. The original agency assessed heavy additional tax on the ground that there had been concealment or disguise in the form of including the representative's personal dining expenses in deductible expenses, and the corporation filed a request for reconsideration after first filing a request for reinvestigation. The representative had signed and sealed a record of questions and answers stating that the dining expenses paid by card were for personal use.

The Tribunal pointed out that this statement was a general one that did not refer to individual expenditures, lacked specificity and was not supported by any objective evidence. It then inferred from the representative's schedule and the testimony of an employee of a business partner that the expenses included dining with a business partner. In conclusion, it did not find concealment or disguise, and revoked the portion of the heavy additional tax exceeding the amount equivalent to the additional tax for deficient returns. On the other hand, because the general ledger did not record who the dining companions were or the purpose of the dining, and there were no materials clarifying these points, the Tribunal did not go so far as to find that all of the expenses were entertainment expenses. Although the decision was based on the particular facts of the case, in this decision the Tribunal did not reach its conclusion merely because the record bore a signature and seal, but examined how specific the statement was and whether there were objective materials.

If the company accepts only some of the findings, it could also file an amended return for those items and receive a reassessment for the remaining items, which it then disputes. At the stage when the recommendation is made, decide with the company's retained tax accountant, for each finding, whether to accept or dispute it, and if there are items to dispute, consult an attorney as well before submitting an amended return.

Requests for Reinvestigation and Requests for Reconsideration: Deadlines and How to Choose

Under Article 75, Paragraph 1, Item 1 of the General Rules Act, a person dissatisfied with a disposition by the district director of a tax office can choose between a request for reinvestigation to that district director and a request for reconsideration to the President of the National Tax Tribunal. If the notice of reassessment states that officials of a Regional Taxation Bureau conducted the audit, the disposition is deemed to have been made by the Regional Commissioner of the Regional Taxation Bureau, and the request for reinvestigation is made to the Regional Commissioner (Paragraph 2, Item 1 of the same Article).

The deadlines are shown in the table below. Except where there is a justifiable reason, an appeal filed after the deadline is dismissed (Article 77; Article 83, Paragraph 1; and Article 98, Paragraph 1 of the General Rules Act).

Procedure	Counting starts on	Period	Basis
Request for reinvestigation	The day after the date the notice of reassessment is received	3 months	Article 77, Paragraph 1 of the General Rules Act
Request for reconsideration (without a prior request for reinvestigation)	The day after the date the notice of reassessment is received	3 months	Article 77, Paragraph 1 of the General Rules Act
Request for reconsideration (after a reinvestigation decision)	The day after the date a certified copy of the reinvestigation decision is served	1 month	Article 77, Paragraph 2 of the General Rules Act
Action for revocation	The day after the date the company learns of the National Tax Tribunal's decision	6 months	Article 14, Paragraph 3 of the Administrative Case Litigation Act

In addition, once one year has passed from the day after the date of the disposition, no appeal can be filed unless there is a justifiable reason (Article 77, Paragraph 3 of the General Rules Act). An action for revocation likewise cannot be filed once one year has passed from the date of the decision, unless there is a justifiable reason (Article 14, Paragraph 3 of the Administrative Case Litigation Act). Periods are counted according to the calendar without including the first day, and expire on the day before the day in the last month that corresponds to the starting date (Article 10, Paragraph 1 of the General Rules Act). If the notice of reassessment is received on October 15, 2026, counting starts on October 16, and the deadline is January 15, 2027, the day before January 16, 2027.

If the deadline falls on a Saturday, Sunday, national holiday or similar day, the following day becomes the deadline (Article 10, Paragraph 2 of the General Rules Act and Article 2, Paragraph 2 of the Order for Enforcement of that Act). The National Tax Agency also indicates the same treatment in its procedural guidance (Japanese) on requests for reinvestigation. If a request is submitted by mail, it is deemed to have been submitted on the date of the postmark (Article 77, Paragraph 4 and Article 22 of the General Rules Act). Because the written request for reinvestigation and the written request for reconsideration must state the date on which the notice of the disposition was received (Article 81, Paragraph 1, Item 2 and Article 87, Paragraph 1, Item 2), record the date on which the notice of reassessment arrived and keep the envelope as well.

In a request for reinvestigation, the district director who made the disposition reviews it. The requester can ask for an opportunity to state its opinion orally and can submit documentary evidence (Article 84, Paragraphs 1 and 6 of the General Rules Act). The National Tax Agency has set a standard processing period of three months, and of the 1,448 cases it processed in fiscal 2025 (April 2025 to March 2026) (Japanese), the request was granted in whole or in part in 116 cases (8.0%). If no decision has been made after three months have passed from the day after the request was filed, a request for reconsideration can be filed without waiting for the decision (Article 75, Paragraph 4, Item 1).

In a request for reconsideration, the President of the National Tax Tribunal designates one presiding judge and two or more participating judges, and persons who were involved in the disposition or the reinvestigation decision are not included among them (Article 94 of the General Rules Act). The company can submit a rebuttal to the original agency's written answer (Article 93 and Article 95, Paragraph 1), and in an oral statement of opinion, it can put questions to the original agency with the permission of the presiding judge (Article 95-2, Paragraph 2). The President of the National Tax Tribunal can also make a decision based on an interpretation of laws and regulations that differs from the circulars of the Commissioner of the National Tax Agency, in which case the President notifies the Commissioner of that opinion in advance (Article 99, Paragraph 1). The decision is binding on the relevant administrative agencies, such as the district director of the tax office (Article 102, Paragraph 1). The National Tax Tribunal has set a standard processing period of one year, and of the 3,128 cases it processed in fiscal 2025 (April 2025 to March 2026) (Japanese), the request was granted in whole or in part in 226 cases (7.2%).

The choice between the two depends on the nature of the issues in dispute. If there are contracts or minutes that the company could not fully present during the audit, and there is room for the disposition to be reconsidered once the facts are supplemented, one option is to seek a review through a request for reinvestigation, which has a standard processing period of three months. If the issue lies in the interpretation of laws and regulations or in the evaluation of facts already explained during the audit, there is likely little prospect that the district director who made the disposition will change the conclusion based on the same materials. In that case, choosing a request for reconsideration from the outset shortens the time it takes to reach a decision or litigation. Where the company wants to confirm from the documents what the original agency relied on in making the disposition, a request for reconsideration, which has a procedure for inspecting documents, is also the better fit. Even if the company chooses a request for reinvestigation, there is only one month from the arrival of the certified copy of the reinvestigation decision to file a request for reconsideration, so prepare the written request for reconsideration in parallel.

Filing an appeal does not stop the effect of the reassessment or the collection procedures (main clause of Article 105, Paragraph 1 of the General Rules Act). As a rule, seized property is not converted into cash until a reinvestigation decision or a National Tax Tribunal decision is made (proviso to the same Paragraph). However, if the company disputes the reassessment without paying and the disposition is upheld, it will also have to bear delinquency tax for that period (Article 60, Paragraph 1, Item 2). If the company pays and then disputes the reassessment, and the disposition is revoked, the tax paid is refunded together with interest on refunds. If payment is difficult, the company can apply for suspension of collection (Article 105, Paragraph 2 for requests for reinvestigation, and Paragraph 4 of the same Article for requests for reconsideration).

The Exhaustion Requirement (Prior Request for Reconsideration) and the Period for Filing an Action for Revocation

An action seeking revocation of a disposition concerning national taxes cannot be filed until a decision has been made on a request for reconsideration (Article 115, Paragraph 1 of the General Rules Act). Article 8, Paragraph 1 of the Administrative Case Litigation Act (Japanese) sets out the principle that an action for revocation can be filed immediately even against a disposition for which a request for reconsideration can be made. This principle does not apply, however, where a law provides that an action cannot be filed until after a decision on the request, and Article 115, Paragraph 1 of the General Rules Act is such a provision. By way of exception, an action can be filed without going through a decision, for example where no decision has been made after three months have passed from the day after the request for reconsideration was filed (Article 115, Paragraph 1, Items 1 to 3). The National Tax Tribunal's guidance (Japanese) states that even in this case, the requester can continue to seek a decision separately from the litigation.

If the company is dissatisfied with the decision, it files an action for revocation within six months from the date it learned of the decision (Article 14, Paragraph 3 of the Administrative Case Litigation Act). The subject of the action is usually the original reassessment. This is because, where both an action for revocation of the disposition and an action for revocation of the decision rejecting the request for reconsideration can be filed, the illegality of the disposition cannot be raised as a ground in the action for revocation of the decision (Article 10, Paragraph 2 of the same Act). The defendant is the State, to which the district director of the tax office who made the disposition belongs (Article 11, Paragraph 1, Item 1 of the same Act), and filing the action does not stop the execution of the disposition (Article 25, Paragraph 1 of the same Act).

In tax litigation, there are also rules on when arguments and evidence must be submitted. Article 116, Paragraph 1 of the General Rules Act addresses cases where the company asserts that facts favorable to it, such as the amount of deductible expenses, differ from the facts on which the tax disposition was based. In that case, after the date on which the State asserts the facts on which the disposition was based, the company must without delay specifically assert those favorable facts and offer evidence. Assertions or offers of evidence made in breach of this requirement are deemed to have been submitted after the appropriate time for the purposes of Article 157, Paragraph 1 of the Code of Civil Procedure, and may be dismissed (Article 116, Paragraph 2 of the General Rules Act). Because the company may not be ready in time if it only starts looking for materials once litigation has begun, it needs to assemble the evidence supporting its arguments at the request for reconsideration stage.

Dividing Roles Between the Company's Retained Tax Accountant and Attorneys

Article 2, Paragraph 1 of the Certified Public Tax Accountant Act (Japanese) defines tax representation, the preparation of tax documents and tax consultation as the work of certified public tax accountants. Tax representation means acting on another's behalf in filing returns and appeals with tax authorities and in making assertions and statements to tax authorities in connection with tax audits and dispositions. The tax authorities referred to here include the National Tax Tribunal, and written appeals are also listed among the tax documents whose preparation is covered. Except as otherwise provided in the Certified Public Tax Accountant Act, no one other than a certified public tax accountant or a certified public tax accountant corporation may perform this work (Article 52 of that Act). Attending the audit, preparing amended returns and written requests for correction, and calculating tax amounts are the work of the company's retained tax accountant, who handles the company's books and returns on a day-to-day basis.

A tax accountant who has submitted a tax representation authority certificate becomes a tax representative who receives the advance notice of an audit (Article 74-9, Paragraph 1 and Paragraph 3, Item 2 of the General Rules Act). If the company consents, the explanation of the audit results and similar communications can also be given to the tax accountant (Article 74-11, Paragraph 4). Even in this case, the company should obtain the content of the explanation from the tax accountant in writing and share the amount and the reasons for each irregularity within the company.

In requests for reinvestigation and requests for reconsideration, an attorney, a certified public tax accountant or another person the requester considers appropriate can be appointed as the representative (Article 107, Paragraph 1 of the General Rules Act). For an attorney to perform the work of a certified public tax accountant, there is a system under which the attorney notifies the Regional Commissioner through the bar association to which the attorney belongs (Article 51, Paragraph 1 of the Certified Public Tax Accountant Act). The National Tax Tribunal's guidance (Japanese) also asks that, where a representative's work amounts to the work of a certified public tax accountant, attention be paid to the application of this provision and Article 52. In an action for revocation, counsel must be an attorney (main clause of Article 54, Paragraph 1 of the Code of Civil Procedure; Article 7 of the Administrative Case Litigation Act). On matters concerning taxes, a certified public tax accountant may appear in court as an assistant in court together with the attorney acting as counsel, and make statements (Article 2-2, Paragraph 1 of the Certified Public Tax Accountant Act). Statements by the assistant in court are deemed to have been made by the party or counsel themselves unless the party or counsel immediately withdraws or corrects them (Paragraph 2 of the same Article).

The division of roles becomes clear when work involving the calculation of tax is separated from work involving fact-finding and the interpretation of laws and regulations. The tax accountant takes charge of calculating income and tax, explaining the accounting treatment and the background to the returns, and preparing the documents for amended returns and requests for correction. The attorney reconstructs the facts of the transactions from contracts, minutes and emails, and frames arguments on the nature of the contracts and the interpretation of the wording of the tax laws as a rebuttal to the reasons for the disposition. Another approach is to appoint both the tax accountant and the attorney as representatives in the request for reconsideration and to assign responsibility for each document, and in litigation, the attorney appears in court as counsel and the tax accountant as an assistant in court. Where the authorities' findings concern fact-finding on transactions or the interpretation of contracts, have the two share the records from the audit stage and the list of evidence before deciding whether to file an amended return as recommended. If you then decide who will prepare which documents within the three-month period, you can avoid having work pile up just before the deadline.