United States: Court Approves "John Doe" Summons Authority For IRS To Provide Treaty Partner With Information On US Bank Accountholders

The Justice Department has announced that it initiated ten petitions to allow "John Doe" summonses to be served on US financial institutions at the request of the Norwegian government.1 The John Doe summonses seek information from the banks about accountholders who have used certain credit or debit cards in Norway. Norway requested the information from the IRS pursuant to the tax treaty in effect between Norway and the US, which provides for cooperative exchanges of information relevant to enforcement of either country's tax laws. The Norwegian authorities have reason to believe that the use of US bank payment cards in Norway by cardholders who do not identify themselves may allow the cardholders to avoid income tax by failing to report the US account information or income on tax returns. In its press release, the Justice Department affirmed its commitment to international cooperation as part of its ongoing efforts to curb tax evasion. By cooperating with other nations, the US may have more success in the future with its own tax compliance initiatives, such as the Foreign Account Tax Compliance Act.

Several courts have already entered orders authorizing the John Doe summonses.2 For example, on July 24, the United States District Court for the Western District of Pennsylvania approved the IRS petition to serve summonses.3 The court approved the petition without significant discussion of the issues, thereby implicitly approving the government's conclusions in its memorandum in support of the petition.

The government's memorandum to the court in support of the petition focused on the requirements for a John Doe summons in Section 7609(f).4 Generally, courts may grant leave to serve such a summons when the government shows three factors: (1) the summons relates to a particular person or group of individuals, (2) there is a reasonable basis to believe that a person or group may not have complied with internal revenue laws, and (3) the information sought is not readily available from another source. In its memorandum and related declarations, the government argued that it had established these three factors. The government stated that the summonses relate to investigations of particular individual (or joint) accountholders who may be easily identified by the banks using the relevant account numbers in the summonses. The government argued that there was a reasonable basis to believe that these particular people violated internal revenue laws. The memorandum asserted that the requirement of a failure to comply with internal revenue laws should include Norwegian laws because the relevant tax treaty requires the US government to collect information requested by Norway under the treaty using the enforcement mechanisms under the Internal Revenue Code, such as a summons, as if the Norwegian tax were a tax of the US. Moreover, the government cited authority approving the use of a summons under section 7602 to acquire records for a treaty partner. Based on the records already in the possession of the Norwegian authorities, the government argued that there was reasonable basis to believe the particular cardholders may have violated tax laws because of the high level of activity and significant dollar amounts of transactions made by the cardholders without personally identifying themselves. As additional evidence, the government cited evidence of the successes of other payment card investigations, which have uncovered tax fraud in the past. Finally, the government argued that the information requested about the accountholders who used payment cards was not readily available from other sources apart from the banks which are the recipients of the summonses. According to the Norwegian authorities, cardholder identities cannot be ascertained for certain transactions, such as ATM and debit card transactions without the help of the banks to match an account number with an accountholder's identity. In support of its argument, the government cited other cases where John Doe summonses were issued to identify US taxpayers when the IRS suspected that such taxpayers were using payment cards to avoid US taxes.

Footnotes

1 Department of Justice, Federal Courts Authorize Service of John Dow Summonses Seeking Identities of Persons Using Payment Cards in Norway (July 29, 2013).

2 Department of Justice, Federal Courts Authorize Service of John Dow Summonses Seeking Identities of Persons Using Payment Cards in Norway (July 29, 2013).

3 In Re Tax Liabilities of John Does, No. 2:13 cv 01066 NBF (W.D. Pa. 2013), Order (07/24/13), Tax Analysts Document Service Doc. 2013 18393.

4 In Re Tax Liabilities of John Does, No. 2:13 cv 01066 NBF (W.D. Pa. 2013), Memorandum in Support of Ex Parte Petition for Leave to Serve "John Doe" Summons (07/22/13), Tax Analysts Document Service Doc. 2013 18392.

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