Tax audits of the Impôt sur la Fortune Immobilière (real estate wealth tax) are a major concern for taxpayers. The tax authorities have extensive means at their disposal to verify the consistency and accuracy of your IFI declaration. Faced with this reality, you need to know your rights, your obligations and the appropriate defense strategies.

This procedure may concern the valuation of your real estate assets, the scope of your taxable assets or the deductible debts applied. Understanding the mechanisms of the IFI tax audit will enable you to adopt a proactive stance and avoid costly reassessments.

What is the IFI Tax Audit?

The IFI tax audit is a procedure whereby the tax authorities verify the compliance of yourIFI tax return with current legislation. The authorities examine the value of your real estate assets, the application of allowances and deductions, and the composition of your tax base. The audit can cover the last three years, or even six years in the case of omissions, and can be triggered by automatically detected inconsistencies or by sector targeting.

This in-depth audit involves an adversarial exchange with the tax authorities, during which you benefit from strict procedural guarantees governing the auditor’s powers. The procedure generally lasts between 6 and 18 months, and requires the production of supporting documents such as notarial deeds, property valuations, proof of deductible debts and bank statements. You have the right to be assisted by counsel at every stage of the audit.

The Different Forms of IFI Tax Audit

The tax authorities have a number of audit procedures to suit the complexity of your asset situation. These checks can be triggered when your real estate assets exceed the tax threshold, or when inconsistencies are detected in your tax return.

The choice of procedure depends on the scope of the investigations required and the elements that the administration wishes to verify. Each type of inspection is governed by specific procedural rules that determine your rights and the guarantees you enjoy. Understanding these distinctions will enable you to adapt your defense strategy and your response to the administration’s requests.

Contradictory Examination of Personal Tax Situation

The Examen Contradictoire de la Situation Fiscale Personnelle (ESFP) is the most in-depth form of tax audit. Although less than 5% of IFI audits take this form, the ESFP enables the tax authorities to analyze your entire asset and financial situation over a maximum period of three years. The procedure begins with the dispatch of a notice of audit specifying the years concerned and your rights, with an incompressible minimum period of 15 days before the actual start of the audit operations to prepare your defense and gather the necessary supporting documents.

The auditor examines the overall consistency between your declared income, your lifestyle and the evolution of your real estate assets. This in-depth analysis frequently reveals inconsistencies, with around 70% of ESFPs resulting in a tax reassessment. The magnitude of this procedure fully justifies the assistance of a specialized advisor as soon as you receive the audit notice.

Parts inspection

Documentary audits are the most common and least intrusive form of IFI tax audit. The tax authorities examine your file from their offices, and ask you to provide explanations or clarifications on specific points of your tax return. You have 30 days in which to respond, which can be extended on reasoned request. Unlike the ESFP, which can take several months to complete, this type of audit generally takes between 2 and 4 months.

This procedure frequently concerns the valuation of a specific asset, the application of a tax allowance or the deductibility of certain debts. Although it accounts for around 85% of IFI audits, it can nevertheless result in average reassessments of between €15,000 and €50,000. In 12% of cases, a documentary audit revealing significant anomalies is transformed into a contradictory examination of the personal tax situation, in order to deepen the audit.

Common reasons for IFI tax audits

Undervaluation of real estate

Under-valuation is the main reason for IFI adjustments. The administration systematically compares your valuations with real estate databases and comparable transactions.

You must value your property at its actual market value on January 1 of the tax year. Excessive discounts for occupancy or joint ownership are of particular concern to the tax authorities.

Atypical properties, prestige properties or assets held through corporate structures are subject to heightened vigilance. The authorities may appoint an expert to challenge your valuation.

Errors in calculating the taxable base

IFI calculation errors are a frequent reason for tax audits. The omission of certain assets, the incorrect application of territoriality rules or the undue deduction of liabilities are major risks.

In particular, the tax authorities check the eligibility of deductible debts. Only debts existing on January 1 and relating to taxable assets can reduce your tax base.

Complex arrangements involving non-trading property companies or property dismemberments require particular attention. A misinterpretation can result in a substantial adjustment, with penalties.

Non-Declaration or Late Declaration

Failure to declare assets in excess of 1.3 million euros is a serious offence. The French tax authorities have powerful cross-checking resources at their disposal to detect such situations, thanks in particular to their extensive investigative powers.

Late filing of your tax return, even without fraudulent intent, exposes you to late-filing penalties. These surcharges are in addition to the reminder duties and late payment interest.

The tax statute of limitations has been extended to six years for failure to declare, compared with three years for a standard audit. This significant extension reinforces the importance of a systematic and punctual declaration.

Undervaluation of real estate

Under-valuation is the main reason for IFI reassessments, accounting for almost 60% of the audits resulting in an increase. The tax authorities systematically compare your valuations with real estate databases (DVF, Patrim) and comparable transactions in the sector. You must value your property at its real market value on January 1 of the tax year, i.e. the price that could be obtained in the event of a sale under normal market conditions. While the tax authorities generally tolerate a 10-15% margin of appreciation due to the specific characteristics of each property, any excessive discount immediately attracts their attention.

Discounts for owner-occupation (generally accepted at 10-20%) or joint ownership (5-15% depending on the situation) must be justified and proportionate. Atypical properties, prestige properties, assets held via corporate structures or buildings generating rental income are subject to increased vigilance. The authorities may appoint an independent expert to challenge your valuation, particularly when the difference with market values exceeds 20%. In such cases, the burden of proving the validity of your valuation lies entirely with you.

Errors in calculating the taxable base

IFI calculation errors are a frequent reason for tax audits. The main anomalies detected concern the omission of real estate assets, the incorrect application of territoriality rules, the undue deduction of liabilities and the incorrect valuation of shares in non-trading property companies (SCI). The tax authorities systematically check the eligibility of deductible debts: only those existing on January 1 of the tax year and relating directly to taxable assets can reduce your tax base. Personal debts, loans between members of the same family with no legal formality, or loans taken out to acquire exempt assets are the most frequent cases of rejection.

Set-ups involving non-trading property companies or property dismemberments call for increased vigilance, as they account for almost 40% of tax reassessments linked to calculation errors. A misapplication of the rules governing the valuation of company shares, a failure to include certain assets or a misinterpretation of the applicable tax regime can result in a substantial reassessment, accompanied by penalties. A preventive tax audit can help identify these areas of risk before the tax authorities carry out an audit.

Non-Declaration or Late Declaration

If your real estate assets exceed 1.3 million euros, you must file an IFI tax return before the annual deadline (generally the end of May or beginning of June, depending on your département). The tax authorities have powerful cross-checking tools at their disposal – cross-referencing notarial data, property files, bank information – to detect taxpayers who have failed to meet this obligation. Failure to file a tax return is a serious offence, and could result in major tax reassessments.

Late filing, even without fraudulent intent, incurs late-filing penalties (minimum 10%) in addition to the reminder duties and late-filing interest of 0.20% per month. What’s more, the statute of limitations has been extended to six years in the event of failure to file a tax return, compared with three years for a standard tax audit. This significant extension of the limitation period reinforces the importance of a systematic and punctual declaration of your real estate wealth tax.

How an IFI tax audit works

The Preparatory Phase and the Notice of Verification

The audit begins with receipt of a notice of audit, which must be sent by registered letter with acknowledgement of receipt. This document must specify the nature of the inspection (ESFP or documentary inspection), the years concerned, the date of the first interview and your rights and guarantees, in particular the possibility of being assisted by a counsel of your choice.

The tax authorities must respect a minimum period of fifteen days between receipt of the notice and the effective start of the inspection operations. This unavoidable period allows you to prepare your defense and consult a specialized tax lawyer. Failure to comply with this time limit, or to include the required information in the notice, constitutes a procedural defect liable to invalidate the audit and any resulting reassessments.

Verification operations

During the verification phase, the tax authorities ask you to produce all documents and evidence relating to your property assets: notarized deeds of purchase, bank statements, proof of debts, property valuations, articles of association for non-trading property companies, and loan contracts. You have a minimum of thirty days to respond to each request, which can be extended on reasoned request. The auditor may also request information from third parties (notaries, banks, co-ownership syndicates, foreign administrations) to confirm or refute elements of your declaration, without you being able to object.

The length of the audit varies according to the complexity of your asset situation, generally ranging from three to six months for a standard file. However, the tax authorities must respect reasonable deadlines and complete the audit within a legal maximum period, beyond which an abnormally long audit constitutes a procedural defect that can be exploited in your defense. Audits must begin within a reasonable period of time after the audit notice has been sent, failing which the legality of the procedure may be challenged.

The Rectification Proposal

When anomalies are identified, the tax authorities send you a reasoned proposal for rectification, detailing the adjustments envisaged in accordance witharticle 964 of the CGI. You have thirty days in which to respond, which can be extended if you submit a reasoned request to the auditor. To maximize your chances of obtaining a partial or total waiver of the reassessment, your response must be legally substantiated and supported by convincing evidence.

This contradictory phase is a decisive strategic moment: statistics show that almost 40% of rectification proposals are reduced or dropped following a well-argued response. A solid challenge, ideally prepared with the assistance of a tax lawyer, can lead the administration to substantially revise its claims before any assessment. The financial stakes fully justify investing in a rigorous technical defense at this stage of the audit.

Your rights and guarantees against inspection

The right to legal counsel

You can call on the assistance of a tax lawyer or chartered accountant at any stage of the audit. This professional assistance guarantees that your rights are respected and optimizes your defense strategy.

Your advisor can talk directly to the auditor, analyze the legality of the requests made and prepare your responses. His technical expertise is particularly valuable when faced with complex reassessments.

Early intervention by a specialist can often avoid procedural errors or unnecessary concessions. The investment in qualified support usually pays off in financial terms.

Procedural guarantees

Tax authorities must scrupulously respect the procedural rules governing tax audits. Any failure to do so constitutes a procedural irregularity liable to invalidate the tax reassessment.

In particular, you have the right to be informed of the reasons for the inspection, to respect legal deadlines and to be given sufficient reasons for any rectifications. These guarantees protect you against administrative arbitrariness.

The burden of proof generally lies with the tax authorities, except in certain specific situations. You don’t have to prove your innocence, but you do have to challenge the elements put forward by the auditor.

The right to legal counsel

The right to be assisted by a tax lawyer or chartered accountant is a fundamental guarantee at every stage of the IFI tax audit. Statistics show that almost 65% of taxpayers audited for assets in excess of €2 million request professional assistance. Your advisor dialogues directly with the auditor, analyzes the legality of the claims and prepares legally sound responses, which proves decisive when faced with complex reassessments involving property valuation or asset structuring.

The best time to seek professional advice is as soon as you receive your tax audit notice, or even earlier, during a preventive audit. Tax litigation data show that professional assistance reduces the amount of reassessment initially proposed by the tax authorities by an average of 40% to 60%. The cost of assistance generally varies between 3,000 and 15,000 euros, depending on the complexity of the case and the years audited, an investment which is justified in view of the average financial stakes involved in an IFI reassessment, often ranging from 50,000 to 300,000 euros.

Procedural guarantees

The tax authorities must comply strictly with the procedural rules governing IFI tax audits. The most frequently observed procedural flaws include failure to give sufficient reasons for the rectification proposal, failure to meet the legal deadline for response, failure to mention the taxpayer’s guarantees, and irregularity of the audit notice. These shortcomings can result in the complete nullity of the tax reassessment, with legal statistics showing that some 15% to 20% of tax disputes result in cancellation on formal grounds. In particular, you have the right to be fully informed of the reasons for the audit, to be given thirty days in which to respond to requests, and to be given item-by-item reasons for any proposed adjustment.

The burden of proof generally lies with the tax authorities, who must demonstrate that their reassessments are well-founded. However, there are important exceptions to this rule: in the case of ex officio assessment for failure to respond to requests for justification, flat-rate taxation, or when you invoke a particular tax law (preferential regime, exemption), it is up to you to prove that the conditions for application have been met. In all cases, you don’t need to prove your innocence, but rather to challenge the factual and legal elements put forward by the auditor. These guarantees are an essential bulwark against administrative arbitrariness.

Defense and protest strategies

Administrative disputes

Before going to court, you should generally exhaust all administrative remedies, except where otherwise provided by law. A contentious claim to the tax authorities is the compulsory prerequisite for any legal action. This claim must be lodged within two months of the date of assessment, or by December 31 of the second year following the date of assessment for claims relating to the amount of the tax. It suspends the tax liability if you provide sufficient guarantees or obtain a deferment of payment.

The administration has six months to rule on your claim, with an average processing time of four to five months in practice. Silence on the part of the administration means implicit rejection, opening the way for you to take legal action before the administrative court. Statistics show that between 30% and 40% of claims are accepted in full or in part, which fully justifies this approach. Alternatively, you can request a meeting with the departmental contact person, or ask for a tax settlement in certain complex cases.

Litigation

Once your administrative complaint has been explicitly or implicitly rejected, you have two months in which to appeal to the relevant administrative court. This legal procedure generally takes 18 to 24 months in the first instance, plus a further 12 to 18 months if you appeal to the administrative court of appeal.

The judge examines the legality of the tax reassessment in terms of both form and substance, and has the power to cancel all or part of the contested tax assessment. Statistics show a success rate of around 35% to 40% for IFI taxpayers, depending on the nature of the dispute (assessment, base, exemption). The cost of such a procedure varies between 5,000 and 15,000 euros, depending on the complexity of the case, an investment often justified in view of the amounts at stake and the technical expertise required.

Applicable penalties and surcharges

In the event of an IFI tax reassessment, the tax authorities systematically apply interest on arrears at a rate of 0.20% per month, calculated on the amount of tax reassessed. In addition to this interest, the rate of surcharges varies according to the nature and seriousness of the failure to comply:

• 10% surcharge: applicable in the event of late filing of the IFI tax return or late payment of the tax, without any other material breach.
• 40% surcharge: applied in the event of deliberate failure to comply, when the tax authorities demonstrate your intention to evade tax (deliberate undervaluation, omission of assets).
• 80% surcharge: reserved for cases of fraudulent maneuvering, abuse of rights or concealment of taxable assets using procedures designed to mislead the tax authorities.

You can apply for an ex gratia remission of penalties if you can demonstrate good faith and the absence of fraudulent intent. This is an important negotiating lever, particularly when the breach is the result of a misinterpretation of the complex IFI legislation. The administrative judge can also moderate penalties if he considers that their application is disproportionate to the circumstances of the case.

Anticipating and preventing control risk

Preventive Tax Audit

A preventive tax audit helps identify areas of risk before any tax inspection. A specialist will examine the consistency of your property valuations with market prices, check the eligibility of your deductible debts, verify the correct application of allowances for principal residence or donations, and analyze the tax status of your holding structures (SCI, joint ownership). The average cost of such an audit is between €1,500 and €4,000, depending on the complexity of your assets, but the return on investment is significant: spontaneous corrections can avoid average reassessments of €15,000 to €50,000, plus penalties of 10% to 80%.

We recommend that you carry out a preventive audit every three years, or whenever your assets undergo substantial modification (acquisition, donation, restructuring). Only 8% of taxpayers subject to the IFI take this proactive step, even though statistics show that it reduces the risk of subsequent reassessment by 85%. You can spontaneously correct any errors detected by filing an amending declaration within the legal timeframe, thereby avoiding the surcharges for under-declaration that apply in the event of an audit.

Documentation and storage of supporting documents

You must keep your supporting documents for at least six years from the date of your IFI declaration. This documentation is your only means of defense against the tax authorities’ demands in the event of a tax audit. You must archive your documents methodically:

• Notarial deeds of purchase and sale of real estate assets
• Real estate appraisal and valuation reports
• Bank statements attesting to financial flows
• Proof of deductible debts (loan contracts, amortization schedules)
• Invoices for work and condominium charges
• Leases and rental receipts for rental properties
• Articles of association and accounting for companies holding real estate assets

Mixed storage is preferable: paper originals for authentic instruments and secure digital copies for other documents. The absence of supporting documents during an inspection automatically results in the rejection of your arguments by the administration, which can then proceed with an ex officio assessment increased by 20% to 40%. This lump-sum taxation is systematically accompanied by penalties for under-reporting, making rigorous conservation essential to the protection of your assets.

Support from a specialist tax lawyer

The choice of a tax lawyer specializing in IFI is based on several decisive criteria: his specific experience in IFI litigation, his success rate in negotiations with the tax authorities, and his knowledge of recent case law. During your initial consultation, ask him about his intervention methodology, the expected timeframe and the fees he charges. Fees generally range from 3,000 to 15,000 euros, depending on the complexity of the case, with an average support period of 6 to 18 months. Statistics show that accompanied taxpayers obtain an average reduction of 40 to 60% in the reassessments initially notified, compared with 15% for those who defend themselves alone.

In addition to the tax audit itself, a comprehensive wealth management strategy incorporating the tax dimension is essential to secure your situation over the long term. Anticipation through a preventive audit, rigorous documentation of your tax returns and scrupulous compliance with tax obligations are your best protection. Faced with the growing sophistication of the tax authorities’ means of control, and the evolving complexity of the IFI regulations, the expertise of a specialized advisor is no longer a luxury, but a necessity if you are to effectively safeguard your real estate assets.