A Canadian (allegedly, eh) Picked My Pocket!

A resident of Israel has filed a petition to quash an IRS summons served on his bank in connection with an allegedly improper treaty request made by the Canada Revenue Agency (“CRA”) that he claims asks for documents with no conceivable relevance to his Canadian tax liability. You can read the entire story here.

A Canadian named Tibor Silber was under audit by the CRA for the tax years for 2009 through 2015. He moved to Israel in 2016 and was banking with PNC bank which is located in the United States (“US”). Canada and the US have a tax treaty which allows the countries to exchange information as may be relevant for carrying out the provisions of the treaty or of the domestic laws of the US and Canada concerning taxes to which the treaty applies. Pursuant to a request made by the CRA, the Internal Revenue Service (“IRS”) issued a summons to PNC bank requesting information about Tibor Silber for the tax year of 2016.

• Tibor filed a motion that had several objections to this information request.
• He was not under audit for the tax year 2016
• He was not bound to any US-Canadian information sharing agreement because in 2016 he was residing in Israel and was not subject to Canadian tax.

Silber also argued that he didn’t receive advance notice that the IRS would be contacting PNC regarding his tax liability, in violation of the Internal Revenue Code and Treasury Regulations. The regulation states that, in general, IRS representatives “may not make third-party contacts without providing reasonable notice in advance to the taxpayer.”

Although this case has not yet been decided, the implications are clear: Tax authorities worldwide are growing increasingly aggressive in trying to obtain taxpayer information. Whereas in the past it may have been easier to avoid detection, the detection risk is much higher today. Countries are sensitive to the idea that taxpayers are avoiding taxes or not complying with reporting requirements, and as the world gets more interconnected, it gets easier for governments to share and obtain data. 

Internationally active investors should be mindful of this and ensure that they are complying with all tax and reporting requirements to avoid having problems down the road. This can be a difficult task as tax and reporting requirements keep increasing worldwide. Even well-intentioned investors can trip over these requirements.

Prudent internationally active investors should consult with their advisors to ensure they are meeting all international tax and reporting requirements, and be prepared for challenges raised by their local, or any other, tax authority.  

You can trust Riverside TACS to guide you to properly structuring your investment to reduce tax liabilities and to stay compliant with various tax agencies. We look forward to working with you.