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The IRS has administrative summons power

On Behalf of | Nov 7, 2022 | Tax |

If a recent 9th Circuit decision stands, any doubts in Texas about whether or not the IRS can force a person’s hand to disclose their financial information with foreign governments have been put to rest. This decision reaffirms the IRS’s power to seek out information – legally demanding it if necessary – in the name of another country.

The IRS can force you to share tax information with other countries

Taxpayers in the case made an attempt to appeal the decision made by the U.S. District Court for the Northern District of California. But this was ultimately shot down, and their petition to repeal an official summons for information from the Internal Revenue Service was denied.

There are still some requirements that must be met for the IRS to be able to use this power. These information requests still have to fall within standard policies, such as good faith.

If you’re doing business abroad, you’ll want to make sure all of your financial reporting is consistent across the board. As the ruling showed in Zhang v. United States, the information that you provide when you’re abroad can lead to tax issues if you’re not careful.

What is it like to receive this type of information request?

This type of targeted request for tax information is usually started by a country that’s part of an information exchange treaty when it needs to get the information to investigate the taxes of a citizen or resident.

The first step is for the IRS to request tax information from the individual through the foreign country’s government. The person under investigation will usually receive an Information Document Request.

Under certain circumstances, the IRS has the legal authority to make you disclose your tax information to the government of a foreign country. If the individual doesn’t meet this request, the IRS can legally enforce the request using its administrative summons power.