Court Opinion

ID: 9475894
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:42:03.355798+00
Date Added: 2024-06-11T17:45:00.943056
License: Public Domain

WRIGHT, Circuit Judge,
dissenting:
I dissent because the majority opinion imposes new burdens on the competent authority, meddles unnecessarily in Canadian internal affairs, and rejects the only circuit case that considered the good faith requirement in a request for summmons under this treaty. Since I find that the competent authority has met its burden, I would enforce the summonses. “My belief is that a remand will only delay the conclusion of the case.” Chambers, J., dissenting in Neuschafer v. McKay, 807 F.2d 839, 842 (9th Cir.1987) (Chambers, J., dissenting).
*252In order to enforce a tax summons, the IRS need only make a showing of good faith. United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 254-55, 13 L.Ed.2d 112 (1964); see also Liberty Financial Services v. United States, 778 F.2d 1390, 1392 (9th Cir.1985) (burden of establishing good faith is “minimal”). The courts look only to the competent authority’s affidavit to determine whether “good faith” has been shown. See United States v. Bache Halsey Stuart, Inc., 563 F.Supp. 898, 900-01 (S.D.N.Y.1982); Liberty, 778 F.2d at 1392. No inquiry is made into the affidavit itself. See id.
Here, the competent authority’s affidavit stated that (1) the Canadian request was within the scope of the treaty; (2) it was appropriate to honor the request; (3) the requested information may be relevant to the determination of current tax liabilities of Stuart and Kapoor under Canadian law; and (4) the same type of information could be obtained by Canadian authorities under Canadian law.
That affidavit shows good faith. It addresses the elements of Powell. In Bache, the competent authority submitted an affidavit almost identical to that here, and the court held that a prima facie showing was made. Bache, 563 F.Supp. at 900 n. 2.
If the competent authority makes a showing, the taxpayers bear a heavy burden in refuting it. United States v. LaSalle National Bank, 437 U.S. 298, 317, 98 S.Ct. 2357, 2367, 57 L.Ed.2d 221 (1978). “Because criminal and civil fraud liabilities [in tax investigations] are coterminous, the Service rarely will be found to have acted in bad faith by pursuing the former.” Id. (emphasis added).
Here, Stuart and Kapoor did not show an improper purpose. They made bare assertions that Canada’s criminal investigation, preliminary stage, is analogous to a Justice Department referral, and that the competent authority lacked a proper purpose for his enforcement request.
This is hardly enough to carry a light burden, much less a heavy one. These Canadian taxpayers have failed to refute the competent authority’s showing. United States v. Samuels, Kramer & Co., 712 F.2d 1342, 1347 (9th Cir.1983) (mere allegations are not enough to refute showing of good faith). The district court’s finding was not clearly erroneous.1
The majority opinion holds that this affidavit fails to make a prima facie showing of good faith because its exact language differs from that used in Powell to describe the elements of good faith. Powell, 379 U.S. at 57-58, 85 S.Ct. at 254-55. Powell does not require strict language. Rather, it requires merely a showing containing the elements of good faith. A court need not search the showing for specific words, but decides only whether a showing has been made.
The majority does not stop at requiring specific language in the affidavit. It goes on to create an additional requirement for the good faith showing. This would require that the competent authority must, in addition to the Powell language, “make an affirmative statement that the investigation has not reached a stage analogous to a Justice Department referral.” Op. at 249-50. The majority justifies this by implying that the statement is required by the revenue laws of the United States, and thus by the treaty. Op. at 246, 249. It also says that (1) the IRS is better able to make this determination; (2) this will not impede enforcement of the summons; and (3) this will reduce litigation and delay in enforcement. . Id. at 250.
Only one circuit has considered the good faith requirement in a request for summons under this treaty. The Second Cir*253cuit held in United States v. Manufacturers & Traders Trust Co., 703 F.2d 47 (2d Cir.1983), that “the requirements for summons-enforcement are not in all respects precisely the same as for domestic cases.” Manufacturers, 703 F.2d at 50.
The majority opinion rejects the holding of Manufacturers because it preceded the Tax Equity and Fiscal Responsibility Act of 1982, which modified the good faith test requirement.
This is not a sound basis to reject the holding of Manufacturers. That case is not undercut by the fact that the Act (TEFRA) eliminated the requirement that one requesting information from the IRS not abandon the civil investigation intent. The majority opinion observes that the Second Circuit was “reluctant to delve into the institutional good faith of Canada.” Op. at 248. That court’s approach was consistent with current law.
Manufacturers says that “the judicial gloss need not be the same for an international case of this type as for a wholly domestic one.” Manufacturers, 703 F.2d at 51. It holds that, because this country’s policies of (1) pursuing criminal prosecutions through the Justice Department, rather than the IRS, and (2) limiting criminal prosecution discovery, do not apply in Canada, we should relax the good faith test for Canadian tax information requests. Id. at 52.
The Second Circuit opinion shows a healthy respect for the United States’ responsibilities under an international treaty. The court recognized “considerations special to dealings between separate nations” and noted that
Canada might wonder what concern the United States has in applying its internal policy to a case in which this country’s taxes and citizens are not at all involved — only Canada’s. More than that, our international relations with Canada might be damaged and the executives in both countries might be embarrassed if an organ in this country were to characterize a Canadian request as made in “bad faith” where that request was perfectly appropriate under the law of the requesting country.
Manufacturers, 703 F.2d at 53.
I also disagree with the majority’s other justification. This new requirement will necessarily impede the enforcement of a summons because it requires the competent authority to make additional findings. It will increase rather than decrease enforcement litigation because the courts will have to determine ultimately exactly what kinds of Canadian investigations are “analogous” to a Justice Department referral.
The good faith issue should have been decided without a remand. In the course of oral argument, it appeared there was some confusion over the government’s burden to make an adequate showing to justify a warrant. To assist the court, government counsel tendered supplemental materials but without complying with procedural rules, as noted by the majority. But there is precedent for doing just what counsel has done here in cases involving the interpretation of treaties. Coplin v. United States, 761 F.2d 688, 691 (Fed.Cir.1985), aff'd sub nom. O’Connor v. United States, - U.S. -, 107 S.Ct. 347, 93 L.Ed.2d 206 (1986).
The taxpayers objected to our considering the materials, not because they were irrelevant or inaccurate statements of Canadian procedures but only because the rule had not been followed. The simple and expedient way to handle this would have been to invite the taxpayers to respond, giving a reasonable time. Had we done so, this case would long since have been decided.

. The clearly erroneous standard requires the appellate court to accept a lower court’s findings of fact unless the appellate court is left with the "definite and firm conviction that a mistake has been committed.” United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948); Dollar Rent A Car of Washington, Inc. v. Travelers Indemnity Co., 774 F.2d 1371, 1374 (9th Cir.1985). Even accepting the majority's interpretation of the good faith test, the difference between the language in the competent authority’s affidavit and the language the majority demands is so minor that the district court’s ruling can not be deemed clearly erroneous.