The case Maxcrest Ltd. v. United States, 205 F. Supp. 3d 1099 (N.D. Cal. 2016) establishes that the IRS can send tax data abroad and that Russian tax authorities can request US taxpayer data under the Convention Between the United States of America and the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital. Other cases, such as Puri v. United States, No. 21-55132 (9th Cir. Aug. 22, 2022) and Jen Zhang v. United States, No. 21-17093 (9th Cir. Oct. 24, 2022), confirm the IRS’s authority to issue third-party summonses to obtain relevant documents when requested by a tax treaty partner.
The Maxcrest case directly addresses the question of whether the IRS can send tax data abroad and whether Russian tax authorities can request US taxpayer data. The court in Maxcrest held that Article 25 of the Convention Between the United States of America and the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital governs the exchange of tax information between the two countries. Under Article 25, the IRS is authorized to issue a summons relevant to the investigation of any taxpayer’s liability.
This authority is rooted in IRC § 7602(a), which grants the IRS broad powers to issue summonses for information relevant to tax investigations. Additionally, IRC § 6103(k)(4) specifically allows the disclosure of tax returns and return information pursuant to a treaty obligation. The regulations under Treas. Reg. § 301.6103(k)(4)-1 provide further guidance on these disclosures.
Other cases, such as Puri and Jen Zhang, confirm the IRS’s authority to issue third-party summonses to obtain relevant documents when requested by a tax treaty partner. In both cases, the court held that the IRS must make a prima facie showing of its “good faith” in issuing the summons. The legal requirement for the IRS to demonstrate “good faith” in issuing a summons is articulated in United States v. Powell, 379 U.S. 48 (1964), and is codified in the administrative provisions under IRC § 7602 and the corresponding regulations.