Part II: U.S. Enforcement/Collection of Taxes Overseas against USCs and LPRs – Pasquantino – Wire Fraud and Mail Fraud

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Please see my prior post for important background and an introduction to the “Revenue Rule”, U.S. Enforcement/Collection of Taxes Overseas against USCs and LPRs – Legal Limitations

The 9th Circuit Her Majesty case and the Canadian Supreme Court Harden case were both discussed. Both cases are older (1997 and 1963, respectively) and both directly address the old English common law “Revenue Rule” which stands for the proposition as explained by the Canadian Supreme Court citing to another case that:

“. . . there is a well-recognized rule, which has been enforced for at least 200 years or thereabouts, under which these courts will not collect the taxes of foreign States for the benefit of the sovereigns of those foreign States; and this is one of those actions which these courts will not entertain.”n3 [1928] Ch. 877 at 884.

More recently in 2005 in Pasquantino, the U.S. Supreme Court reaffirmed the “Revenue Rule” with the following statement:  “The revenue rule, . . . [u]nder that rule, the courts of one sovereign will not enforce the tax judgments or unadjudicated tax claims of another sovereign.”

However, the Supreme Court in Pasquantino found that a federal “wire fraud” charge (described below) can be used by U.S. prosecutors to pursue criminal tax fraud in another country, under the laws of that other country, when invoking the U.S. wire fraud statute.

In the case of Pasquantino the U.S. prosecutors used Canadian tax evasion related to the smuggling of liquor into Canada as the basis for bringing a U.S. federal wire fraud charge.  The individuals used telephone calls to place the liquor purchases from a discount liquor store in the U.S.  The telephone calls were the basis of the wire fraud claim; since Canadian excise taxes were not paid upon the importation of the liquor from the U.S.

The U.S. Attorneys Criminal Resource Manual describes ” . . . wire fraud under Section 1343 directly parallel those of the mail fraud statute, but require the use of an interstate telephone call or electronic communication made in furtherance of the scheme. United States v. Briscoe, 65 F.3d 576, 583 (7th Cir. 1995) (citing United States v. Ames Sintering Co., 927 F.2d 232, 234 (6th Cir. 1990) (per curiam)); United States v. Frey, 42 F.3d 795, 797 (3d Cir. 1994) (wire fraud is identical to mail fraud statute except that it speaks of communications transmitted by wire) . . . “

The same manual defines mail fraud:  “There are two elements in mail fraud: (1) having devised or intending to devise a scheme to defraud (or to perform specified fraudulent acts), and (2) use of the mail for the purpose of executing, or attempting to execute, the scheme (or specified fraudulent acts).” Schmuck v. United States, 489 U.S. 705, 721 n. 10 (1989); see also Pereira v. United States, 347 U.S. 1, 8 (1954) (“The elements of the offense of mail fraud under . . . §  1341 are (1) a scheme to defraud, and (2) the mailing of a letter, etc., for the purpose of executing the scheme.”) . . .”

A simple example of “mail fraud” is putting in the mail a false U.S. federal tax return.  Sending false returns electronically to the IRS could fall within the ambit of a “wire fraud” claim.  Making telephone calls, or sending e-mails, between states also is used regularly for wire fraud claims.   For an example of how wire fraud and mail fraud charges are brought in tax cases, see the U.S. Attorney’s press release of tax evasion against Congressman Grimm.

The Tax Lawyer published a thoughtful article on the topic in VOL. 59, NO. 2 WINTER 2006, ALL HANDS ON DECK: RESCUING THE REVENUE RULE FROM THE SUPREME COURT’S DECISION IN PASQUANTINO

Imagine that you walk into work tomorrow and find a criminal indictment sitting on your desk. The indictment alleges that recent actions by your company violated the wire fraud statute and that you, as the CEO, are criminally liable.1 According to the government, your company used the U.S. telephone wire system to place calls between New York and California for the purpose of defrauding the Chinese government of property. Specifically, the Government contends that your company defrauded China by not paying taxes due under a Chinese revenue law. While this hypothetical may seem absurd at first, the Supreme Court’s recent decision in Pasquantino v. United States makes this very situation all too realistic.2

At the end of the day, it seems this case stands for the proposition that the U.S. government can indeed use U.S. laws, to at least indirectly enforce the tax laws of another country.   The dissenting opinion in this 5-4 decision, written by Justice Ginsburg at 375 noted that (“Canadian courts are best positioned to decide ‘whether, and to what extent, the defendants have defrauded the governments of Canada and Ontario out of tax revenues owed pursuant to their own, sovereign, excise laws.’”) (quoting United States v. Pasquantino, 336 F.3d 321, 343 (4th Cir. 2003).

The direct enforcement by the U.S. government of U.S. tax judgments overseas will usually be very difficult, specifically to collect overseas assets to pay the taxes.  However, the point of Pasquantino is that the government has yet another tool to bear against U.S. persons, at least in certain circumstances, that may help them effectively (and indirectly) bring legal actions against them in the U.S. to effectively enforce tax claims arising from transactions overseas.  This can be a very powerful tool for the government.

 

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One thought on “Part II: U.S. Enforcement/Collection of Taxes Overseas against USCs and LPRs – Pasquantino – Wire Fraud and Mail Fraud

    renounceuscitizenship said:
    July 14, 2014 at 11:23 am

    Reblogged this on U.S. Persons Abroad – Members of a Unique Tax, Form and Penalty Club and commented:
    There’s good news and bad news:

    First, the good news – The revenue rule appears to remain the law making it difficult to enforce U.S. tax claims abroad;

    The bad news – There are other statutes that can be used.

    “At the end of the day, it seems this case stands for the proposition that the U.S. government can indeed use U.S. laws, to at least indirectly enforce the tax laws of another country. The dissenting opinion in this 5-4 decision, written by Justice Ginsburg at 375 noted that (“Canadian courts are best positioned to decide ‘whether, and to what extent, the defendants have defrauded the governments of Canada and Ontario out of tax revenues owed pursuant to their own, sovereign, excise laws.’”) (quoting United States v. Pasquantino, 336 F.3d 321, 343 (4th Cir. 2003).

    The direct enforcement by the U.S. government of U.S. tax judgments overseas will usually be very difficult, specifically to collect overseas assets to pay the taxes. However, the point of Pasquantino is that the government has yet another tool to bear against U.S. persons, at least in certain circumstances, that may help them effectively (and indirectly) bring legal actions against them in the U.S. to effectively enforce tax claims arising from transactions overseas. This can be a very powerful tool for the government.”

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