As a general rule—and I am therefore not just talking about the KPMG case here—the court relies on the evidence and arguments of the Crown and taxpayers. The judge in charge asks questions, tries to shed light on the case and encourages the parties to reach a settlement. With the assistance of the Department of Justice and with the judges' comments in mind, we conduct a risk assessment to see if we could lose our case in relation to the tax years we are targeting, the penalties we want or our opinion that it is income and not capital gains. We then do an internal assessment.
In the KPMG case, I can tell you that we concluded that there was a probable outcome based on all this information. However, the possibility of a better settlement arose and the agency determined that it was beneficial to the public.
We consider precedents and evidence. Some knowledgeable taxpayers may object to our audits. We must therefore present evidence and data to support our case. Sometimes it's like doing risk management and seeing if it's worth it to proceed.