Appeals courts decide IRS can force U.S. taxpayers to share tax information with foreign governments

Two recent federal appeals court decisions should serve as a reminder to U.S. taxpayers that, under the terms of many tax treaties, the IRS can force them to disclose their tax and banking information so that it can be shared with foreign tax authorities. These decisions also highlight the need to report the same information in the U.S. and abroad because foreign authorities may have access to a taxpayer’s U.S. tax and banking records.

The decisions, both issued by the U.S. Court of Appeals for the 9th Circuit, said the IRS could enforce administrative third-party summonses seeking taxpayer information on behalf of foreign governments if the IRS acted in good faith and complied with the law. The court said it did not need to consider whether the foreign governments seeking the information was also acting in good faith.

The first of the decisions,?Puri v. U.S., No. 21-55132 (9th Cir. 2022), was issued in August and rejected a taxpayer’s efforts to quash a summons seeking information on Sabena Puri’s bank accounts that was issued at the request of Indian tax authorities. The second,?Zhang v. U.S., No. 21-17093 (9th Cir. 2022), rejected Jen and Charles Zhang’s effort to stop the IRS from issuing an administrative third-party summons on behalf of the Canadian government. The U.S. has bilateral income tax treaties with both the Indian and Canadian governments.

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