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Supreme Court of the United States
December 5, 1988, Argued ; February 28, 1989, Decided
[*355] [***398] [**1186] JUSTICE BRENNAN delivered the opinion of the Court.
Articles XIX and XXI of the Convention between the United States and Canada Respecting Double Taxation, Mar. 4, 1942, 56 Stat. 1405-1406, T. S. No. 983, oblige the United States, upon request and consistent with United States revenue laws, to obtain and convey information to Canadian authorities to assist them in determining a Canadian taxpayer's income tax liability. The question presented is whether the United States Internal Revenue Service may issue an administrative summons pursuant to a request by Canadian authorities [*356] only if it first determines that the Canadian tax investigation has not reached a stage analogous to a domestic tax investigation's referral to the Justice Department for criminal prosecution. We hold that neither [****8] the 1942 Convention nor domestic legislation imposes this precondition to issuance of an administrative summons. So long as the summons meets statutory requirements and is issued in good faith, as we defined that term in United States v. Powell, 379 U.S. 48, 57-58 (1964), compliance is required, whether or not the Canadian tax investigation is directed toward criminal prosecution under Canadian law.
Respondents are Canadian citizens and residents who maintained bank accounts with the Northwestern Commercial Bank in Bellingham, Washington. In attempting to ascertain their Canadian income tax liability for 1980, 1981, and 1982, the Canadian Department of National Revenue (Revenue Canada) asked the Internal Revenue Service (IRS) in January 1984 to secure and provide pertinent bank records. Revenue Canada made its requests pursuant to Articles XIX and XXI of the 1942 Convention. 1 The IRS Director of Foreign [*357] Operations -- the "competent authority" under Article XIX -- concluded that Revenue Canada's requests [***399] fell within the scope of the Convention and that it would be appropriate for the United States to honor them. App. 27-28. [****9] Specifically, he found that "the requested information is not within the possession of the Internal Revenue Service or the Canadian tax authorities; that the requested information may be relevant to a determination of the correct tax liability of [respondents] under Canadian law; and that the same type of information can be obtained by tax authorities under Canadian law." Id., at 28. Thus, on April 2, 1984, the IRS served on Northwestern Commercial Bank administrative summonses for the requested information.
[****10] At respondents' behest, the bank refused to comply. In accordance with 26 U. S. C. § 7609(b)(2), respondents petitioned the United States District Court for the Western District of Washington to quash the summonses. Only one of their claims is before us. Respondents contended that because the IRS may not issue a summons to further its investigation of a United States [**1187] taxpayer when a Justice Department referral is in effect, 26 U. S. C. § 7602(c), and because Revenue Canada's investigation of each of them was, in the words of the IRS Director of Foreign Operations, "a criminal investigation, preliminary stage," App. 28, United States law proscribed the use of a summons to obtain information for Canadian authorities regarding respondents' American bank accounts. The Magistrate who held a consolidated hearing on respondents' claims rejected this argument. Without addressing their contention that the IRS may not issue a summons pursuant to a request by Revenue Canada once a Canadian tax investigation has reached a stage equivalent to a Justice Department referral for criminal prosecution, the [*358] [****11] Magistrate found that, even if respondents' legal claims were assumed to have merit, they had failed to carry their burden of showing that the Canadian authorities' investigation had advanced that far. App. to Pet. for Cert. 31a. Upon considering the Magistrate's report and respondents' objections to it, the District Court ordered the bank to comply with the summonses. Id., at 25a-26a, 34a-35a.
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489 U.S. 353 *; 109 S. Ct. 1183 **; 103 L. Ed. 2d 388 ***; 1989 U.S. LEXIS 1199 ****; 57 U.S.L.W. 4263; 89-1 U.S. Tax Cas. (CCH) P9185; 63 A.F.T.R.2d (RIA) 89-681
UNITED STATES v. STUART et al.
Prior History: [****1] CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT.
Disposition: 813 F. 2d 243, reversed and remanded.
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International Law, Authority to Regulate, International Regulation of Taxation, Tax Law, International Taxes, General Overview, Federal Tax Administration & Procedures, Audits & Investigations, Administrative Summons, Third Party Summonses, Administrative Law, Agency Investigations, Burdens of Proof, Burden of Taxpayer, Treaty Interpretation, Treaty Formation, Liberal Construction