Canadians know that their proximity to the US presents both risk
and opportunity. One risk that has always been hard to quantify is
the risk that the IRS and CRA will cooperate to enforce each
others' tax laws with respect to assets and information on both
sides of the border.1 Recently, the likelihood of this
cooperation increased significantly. For the first time, the US
government has used a powerful device in support of a
treaty-partner government to obtain financial data. At the request
of the Norwegian taxing authority, the IRS (and Department of
Justice) applied to US federal district court (in multiple
jurisdictions) for leave to file a "John Doe" summons.
This is a specialized summons authorized by the US Internal Revenue
Code when the IRS is seeking otherwise unavailable information
regarding a particular individual or group that are believed to
have failed to comply with tax laws. Although tax treaties
generally require the signatory countries to assist each other in
data collection, the US has not previously extended this assistance
to the issuance of a John Doe summons.
As they say in Norway, first time for everything. The IRS, in
the US (Federal) District Court for the Western District of
Pennsylvania, sought and obtained leave to serve "John
Doe" summonses against PNC Bank and RBS Bank to obtain
information about specific debit and credit card accounts. The
patterns of use on these accounts indicated that the account
holders were using the accounts to shelter gain from Norwegian
Of course, no one is surprised that the IRS wants to serve
summonses on American banks that have issued payment cards to
parties that the IRS has reason to believe are skirting the tax
laws. But here the tax laws being skirted are the laws of . . .
Norway. And the failures to report, file and/or pay are all
breaches of Norwegian law. And the IRS only sought
leave to file these summonses because the Norwegian Tax
Administration requested assistance in identifying [Norwegian] tax
scofflaws2 making use of these cards to avoid their tax
The US Department of Justice acknowledges that this is the first
time that "John Doe" summonses have been utilized to
enforce the tax laws of a foreign sovereign.3 However,
the Department of Justice argues that since the US – Norway
Tax Treaty (Convention) requires mutual assistance in collection of
revenue as though such revenue were payable under the assisting
country's laws, and since treaties are recognized as having the
authority of federal law, the IRS is justified (if not obligated)
in using the summons mechanism in its cooperation with Norwegian
Language similar to the language of the US-Norway tax convention
can be found in many of the Tax Treaties to which the US is a
party. Practitioners expect that international cooperation in
revenue enforcement will continue to expand. Taxpayers should
realize the potential for the taxing authority of one country to
assist the taxing authority of other countries in identifying
parties and/or assets subject to enforcement. Individuals and
businesses have long been crossing borders to seek economic
opportunity; governments are now doing the same.
1. Practitioners are generally barred from factoring the
likelihood of effective enforcement into the tax advice they offer
clients. However, the law has yet to be passed which prevents
clients from asking the question.
2. It is not known whether the proper term for Norwegian
scofflaws is "Sköffenllautzen".
3. Students of American history may find irony in an
administrative branch of the US government providing tax
enforcement on behalf of a European king.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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