IRS, the Friendly Helper

Every now and then a case lands on my desk that reminds me of how tax administrators of different countries can work together– to get information (that may lead to $$) on a particular taxpayer. Mr. Hanse, a French citizen that lives in Monaco, was under investigation by French tax authorities. They discovered that Mr. Hanse had sent large amounts of money to a law firm in the U.S. To look into this, the French requested the IRS to get them the information. Since the IRS did not have the information at hand, it was sought by issuing a summons (an order) against the American attorneys. Quite understandably, Mr. Hanse fought in federal court against the IRS’s efforts to summon the information from the lawyers and lost. The federal court ordered the law firm to produce the information.

The U.S. has entered into various agreements with countries for the purpose of tax administration (and reduction of double taxation). These agreements have a clause that provide for one country to assist the other in getting information available to it, using its own national tax administration system. The other country makes a request, and the IRS proceeds to get and provide the information. In Mr. Hanse’s case the French wanted to know the circumstances behind the payment, what was it for, etc. The info was not in the IRS’s hands. It belonged to a third party. The IRS then ordered the third party to provide it to the IRS.

Why, you say, would I write about this in a column aimed at you, my dear U.S. expats in Mexico? The Mexican ‘IRS’ (“SAT”) has used the tax information exchange provisions of the U.S.-Mexico treaty to ask the IRS to get information, too. A few years ago, SAT asked the IRS and got information on U.S. bank accounts owned by a Mexican business. We learned about it (like Mr. Hanse’s case) because it went to court. Otherwise we would have no way of knowing how often it does happen. The Mexico Tax Administration can, if they want, ask the IRS help them in their own investigations by supplying information. So if one comes in the crosshairs of the SAT, this ability to get information from afar may be quite important. That also includes tax returns or return information already in possession of the IRS. Of course, it works backwards, too.

IRS…the ever so friendly helper.

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Orlando Gotay
Lawyer
Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies.
His love of things Mexican has led him to devote part of his practice to the tax matters of U.S. expats in Mexico. He can be reached at tax@orlandogotay.com, online radio at mixlr.com/orlandogotay

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