A recent case highlights how freely taxpayers’ data flows between national borders – and how holders of international assets must realize how much overseas tax authorities can learn about them fast.

The Internal Revenue Service is ready, willing and able to help authorities worldwide with tax enforcement – especially with the sharing of taxpayers’ information.

In Zhang v. United States, taxpayers recently appealed a decision from the U.S. District Court for the Northern District of California that denied their petition against an IRS summons for information. The summons was at the request of the Canadian tax authority; the U.S. and Canada have a bilateral tax treaty.

The Ninth Circuit Court sided with the IRS, saying the agency can seek information for a foreign government if the request satisfies accepted guidelines.

The appellants in the case didn’t dispute that the IRS satisfied its burden (as set by the precedent 1964 case U.S. v. Powell) by establishing a prima facie case of good faith. Instead, they argued, the district court should have considered evidence of Canada’s bad faith relevant to whether issuing the summons would constitute an abuse of the court’s process.

“We have recently considered and rejected nearly identical arguments,” the Circuit Court replied. “We do so again today.”

How and why sharing info happens

Nations share tax information primarily in three ways:

· Automatic exchanges (e.g., BEPS Action 5 OECD minimum standard and the FATCA) are routine and usually associated with standardized financial/bank transactions.

· Spontaneous exchanges, when one country alerts another about a potential tax issue (usually facilitated by bilateral tax treaties); and

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