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Published online by Cambridge University Press: 27 February 2017
In response to a request by Canadian tax authorities under the United States-Canada Double Taxation Convention (Convention), the U.S. Internal Revenue Service (IRS) issued summonses to obtain U.S. bank records concerning certain accounts of respondents, Canadian citizens whose Canadian tax liability was under investigation. Respondents sought to quash the summonses, arguing that because under 26 U.S.C. §7609(b) the IRS is prohibited by U.S. law from using its summons authority to obtain information about a U.S. taxpayer once a case is referred to the Justice Department for prosecution, and because the tax investigation of respondents was part of a Canadian criminal investigation, the IRS should be precluded from using its summons authority to honor the Canadian request under the Convention. Unsuccessful in the district court, respondents prevailed in the U.S. Court of Appeals for the Ninth Circuit, which held that under the “good faith” standard applicable to enforcement of domestic summonses, the IRS may issue a summons pursuant to a Convention request only if it first determines and makes an affirmative statement to the effect that the Canadian investigation has not reached a stage analogous to a Justice Department referral by the IRS. The U.S. Supreme Court (per Brennan, J.) reversed, and held: (1) that if the summons is issued in good faith, it is enforceable regardless of whether the Canadian request is directed toward criminal prosecution under Canadian law; and (2) neither United States law nor anything in the text or the ratification history of the Convention supports the imposition of additional requirements. Justice Kennedy (joined by O’Connor, J.), concurring in part and in the judgment, filed a brief opinion to state his view that it is unnecessary to decide whether Senate preratification materials are authoritative sources for treaty interpretation. Justice Scalia, concurring in the judgment, wrote separately to oppose the use of such materials in treaty construction.
1 Mar. 4, 1942, 56 Stat. 1399, TS No. 983.
2 26 U.S.C. §7602(c) (1982) provides that no administrative summons may be issued or enforced against any person if a Justice Department referral is in effect with respect to that person. Id.
3 Respondents petitioned the District Court for the Western District of Washington to quash the summonses. After a consolidated hearing on the claims, the Magistrate rejected the respondents’ argument, finding that even assuming the merit of their argument, they had failed to demonstrate that the Canadian investigation was comparable to a Justice Department referral for criminal prosecution. The district court accepted the Magistrate’s recommendation that the summonses be enforced, and ordered the banks to comply.
4 Stuart v. United States, 813 F.2d 243, 250 (9th Cir. 1987).
5 The only other circuit court to address this question came to a contrary conclusion. See United States v. Manufacturers & Traders Trust Co., 703 F.2d 47 (2d Cir. 1983).
6 109 S.Ct. 1183, 1193.
7 Id. at 1193–97.
8 379 U.S. 48(1964).
9 To demonstrate “good faith,” the Government must show (1) that the investigation will be conducted for a legitimate purpose; (2) that the inquiry may be relevant to that purpose; (3) that the Government does not already have the information sought; and (4) that administrative steps required by the code have been followed. Id. at 57–58.
10 The IRS had submitted an affidavit stating that neither U.S. nor Canadian tax authorities possessed the information sought by summons, that the bank records might be relevant to the calculation of respondents’ Canadian tax liabilities, that such information could be obtained under Canadian law and that the IRS would protest any improper use of the information provided to Canadian authorities.
11 109 S.Ct. at 1189 (quoting S. Rep. No. 494, 97th Cong., 2d Sess. 1, 286 (1982), reprinted in 1982 U.S. Code Cong. & Admin. News 781, 1032).
12 Id. at 1190.
13 Id. at 1190–91.
14 Id. at 1191 (quoting Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 180 (1982), quoting Maximov v. United States, 373 U.S. 49, 54 (1963)).
15 Id. at 1191.
16 Id. (citation omitted).
17 Id. at 1192 n.7.
18 Id. at 1194 (Scalia, J., concurring). Justices O’Connor and Kennedy, concurring in part and in the judgment, filed a short separate opinion agreeing with Justice Scalia that the Court should not reach in either a direct or implicit way the question of whether Senate debates and reports on ratification are authoritative or even helpful in determining what the signatories to a treaty intended. Id. at 1193.
19 Id. at 1195 (“I have been unable to discover a single case in which this Court has consulted the Senate debate, committee hearings or committee reports”); id. at 1197 (criticizing the Court for “reach[ing] out to use such materials for the first time in two centuries of treaty construction”).
20 Id. at 1196.
21 Id. at 1194.
22 Id. at 1195. A more reliable source for gleaning the mutual intent of the parties would be the negotiating history of the treaty, according to Justice Scalia. Id. Justice Brennan’s footnote response to the argument relied on “hornbook contract law” and the Restatement (Second) Of Contracts §201(2)(b) (1981), allowing one contract party’s construction of an agreement to prevail when there is no reason to know of a different meaning and when that interpretation is known to the other party. According to Justice Brennan, the negotiating history has less value, for it “is rarely a matter of public record available to the Senate when it decides to grant or withhold its consent.” 109 S.Ct. at 1192 n.7.
23 Id. at 1196 (Scalia, J., concurring). Justice Scalia indicated, however, that a formal Senate resolution, even one unmentioned in the President’s ratification, might have some interpretive value.
24 Id. at 1196.
25 686 F.Supp. 354 and 699 F.Supp. 339 (D.D.C. 1988).
26 686 F.Supp. at 357–58 & n.17.
27 699 F.Supp. at 343 (quoting Defendants’ Reply Brief and Opposition to Plaintiff’s Cross-Motion for Summary Judgment 2 n.2).
28 109S.Ct. at 1197.
29 Id. at 1196–97 and 1197 n.*.
30 See generally S. Rep. No. 164, 100th Cong., 1st Sess. (1987).
31 In Rainbow Navigation, 686 F.Supp. 354 and 699 F.Supp. 339 (D.D.C. 1988), the issue before the court—the effect of a provision of a treaty on U.S. shipping—was precisely the issue on which the Senate had sought and received executive branch assurances regarding the way the Executive intended to implement the treaty.
32 For a response by Associate Reporter Vagts to the Justice’s position, see Senate Materials and Treaty Interpretation: Some Research Hints for the Supreme Court, 83 AJIL 546 (1989).