part35-19

A Formal Document Request is another method of gathering information
from abroad administratively. Section 982 provides that if a taxpayer fails
to comply with a formal document request arising out of the examination of
the tax treatment of any item within 90 days after the mailing of the request
by the Secretary, then the taxpayer shall be prohibited from introducing into
evidence in a civil proceeding in which the tax treatment of the examined
item is in issue any foreign-based documentation covered by the request.

The term foreign-based documentation means any documentation held outside
the United States which may be relevant or material to the tax treatment of
the examined item. The term includes documents held by a foreign entity whether
or not controlled by the taxpayer and includes but is not limited to books
and records. Thus, section 982 may be used to request a domestic subsidiary
to produce documents that are in the possession of its foreign parent.

The taxpayer may bring a proceeding to quash the request within 90 days
of its mailing. The government may seek compliance in the proceeding to quash.

Each Tax Attach is stationed in a particular country and is responsible
for a geographical area consisting of several countries. The Tax Attach and
other Service personnel attached to the foreign post are frequently able to
gather needed information. Further, the Tax Attach can be a resource with
regard to the types of information and records maintained by specific agencies
or courts of the various countries and whether such records are publicly available
or privately maintained. Because the Tax Attach is working outside the territorial
jurisdiction of the United States, the procedures which the Tax Attach uses
in exploring a particular matter depends upon formal and informal understandings
with the government of the country in which the Tax Attach is operating. The
freedom which the Tax Attach could exercise might depend upon factors such
as whether an American citizen is being interviewed as opposed to a citizen
from the country involved or a citizen of a third country, and on whether
the government investigation has criminal aspects. Sometimes the agents of
the foreign taxing authorities will assist, collaborate or accompany the Tax
Attach on the investigation. In other cases the scope of permissible action
of the Tax Attach may be severely limited.

Tax Attachs are currently stationed in Paris, France; Berlin, Germany;
and London, England. For a current listing of Tax Attach assignments and a
list of countries covered, refer to the LMSB intranet web-site under International/Director,
International/Overseas Operations. The Overseas Operations division in the
office of Director, International (LMSB), in Washington, D.C., is the contact
point for making treaty requests to Canada and France.

In some cases, the field attorney or cooperating revenue agent may travel
to a foreign country, either alone or with a representative from the Director,
International (LMSB), for the purpose of obtaining desired information directly.
Such foreign investigation would be carried out only after coordination with
the Director, International (LMSB) and the Associate Chief Counsel (International),
Branch 7. This might be appropriate, for example, in a complicated case where
extensive knowledge of the case is required in order to interview a witness
successfully.

The United States has negotiated bilateral income tax treaties with
many foreign countries. Each treaty is unique, although the subjects covered
by treaties are similar. Often the tax treaty will specify the procedures
necessary to obtain information and documents from that country. Where the
treaty is specific regarding procedures for receipt of foreign documents and
information, the treaty provisions must be followed. The United States Competent
Authority has exclusive authority for making and receiving exchange of information
and administrative assistance requests under all tax treaties. Information
and documents obtained pursuant to a tax treaty are privileged and secret
and may not be divulged except as specified in the treaty or by written consent
of the foreign government. In cases where Field Counsel has documents or other
evidence that was received from a foreign country in its files that it plans
to provide to the taxpayer or witness, or file with court pleadings or introduce
at trial, such actions should first be discussed with the Associate Chief
Counsel (International), Branch 7, and coordinated as appropriate, with Director,
International (LMSB) .

For a list of current income tax and other tax treaties to which the
United States is a party, see the LMSB Intranet website.

The United States also has negotiated agreements with numerous foreign
countries governing the exchange of tax information. These are Tax Information
Exchange Agreements (TIEA). The purpose of each TIEA is to assist each country
to assure the accurate assessment and collection of taxes, to prevent fiscal
fraud and evasion, and to develop improved information sources for tax matters.
TIEAs are separate from tax treaties, but do not supplant an existing treaty.
One principal difference between tax treaties and TIEAs is the latter’s
legal status in the United States is that of an executive agreement that is
authorized to be negotiated by the Secretary of Treasury by I.R.C. §
274(h)(6) and other Internal Revenue Code provisions, as opposed to a tax
treaty that is ratified by the Senate. Another difference is that TIEAs are
designed principally for the implementation of exchange of information programs
between the TIEA signatories, whereas tax treaties include numerous articles
designed to alleviate double taxation, as indicated in CCDM 35.4.5.2.3.

Insofar as information exchange and administrative assistance in civil
and criminal tax matters are concerned, TIEAs and tax treaties generally operate
in substantially the same manner. The United States Competent Authority in
all TIEAs is the Director, International (LMSB). As with tax treaties, the
authority and obligation to exchange information under a TIEA extends to information
with respect to persons who are not residents or nationals of one of the contracting
states. The officials of each country have a duty not to disclose information
obtained under a TIEA other than to those involved in the country’s
tax administration, and any information exchanged is subject to strict confidentiality
and use provisions.

A TIEA generally provides for the exchange of tax information pursuant
to specific requests, as well as routine and spontaneous exchanges of information,
including information necessary or appropriate to carry out and enforce the
tax laws of the United States and the beneficiary country (whether criminal
or civil proceedings). TIEAs have more detailed provisions than tax treaties,
in part because many of the jurisdictions that have signed TIEAs with the
U.S. did not have comprehensive procedures in their local law for obtaining
information in tax matters. TIEAs thus provide that the U.S. Competent Authority
may specifically request that information shall be furnished in the form of
depositions of witnesses and authenticated copies of unedited original documents
(including books, papers, statements, records, accounts, and writings) in
a form admissible into evidence in the Courts of the requesting country. The
U.S. Competent Authority may also request information that may otherwise be
subject to nondisclosure provisions of the local law of the beneficiary country
such as provisions respecting bank secrecy and bearer shares.

Under a TIEA, the requested country may

Most federal courts are authorized under 28 U.S.C. § 1783 to issue
judicial subpoenas to a United States national or resident who is abroad.
Such subpoenas may be issued during civil or criminal litigation and in connection
with grand jury investigations. The Tax Court, however, is not among the federal
courts authorized to issue subpoenas in such cases. Consequently, the Tax
Court subpoena power is generally limited to the boundaries of the United
States. See CCDM 35.4.3.7. Under section 7456, the Tax
Court may, upon motion and notice by the Secretary and a showing of good cause,
order any foreign corporation, a foreign trust or estate, or a non-resident
alien individual, who has filed a petition with the Tax Court, to produce
books, records, etc., wherever situated, which are in the possession, custody
or control of the petitioner, or of any person directly or indirectly under
his control or having control over him or subject to the same common control.

Letters rogatory are a formal written request by a court or judge to
a court or judge in a foreign jurisdiction to summon and cause to be examined
a specified witness within the jurisdiction and transmit his testimony for
use in a pending action. Testimony of a witness in a foreign country can be
obtained by letters rogatory. T.C. Rule 81(e). Obtaining information from
abroad through letters rogatory can take a substantial amount of time.

The potential usefulness of letters rogatory also depends, to a large
extent, on the foreign country involved and on the type of judicial assistance
being requested. Although there is no limitation on the type of assistance
in obtaining evidence which may be requested, the type of assistance which
will be given is completely within the control of the foreign court involved.
Thus, many countries will not honor requests which have been issued for pre-trial
discovery purposes. Foreign courts might also refuse to cooperate because
the request involves the enforcement of tax or fiscal matters, because bank
secrecy laws are involved, or for other reasons relating to the policies of
the foreign government. Similarly, most countries, including the United States,
will not honor requests made by administrative bodies or from executive departments
or agencies because such requests do not come from judicial authorities.

Use of letters rogatory frequently involves procedural difficulties.
For example, if the court to receive the request is in a non-English speaking
country it will be necessary to translate the request as well as any pertinent
documents. Since the translations must be certified, this can be a time consuming
process. Also, many countries require that letters rogatory be transmitted
through the State Department and their own foreign ministry or foreign office
rather than directly from court to court.

Notwithstanding the difficulties which may be encountered, the use of
letters rogatory may provide the only possible means for obtaining evidence
or for effecting service of process. Moreover, because each foreign country
may have a different set of rules and priorities it may be possible to obtain
assistance from the foreign court involved beyond that which might be expected.
For an example of a request for letters rogatory, see Exhibits
35.11.1–102 and 35.11.1–103 (Obtaining Testimony of a Witness
to a Foreign Country).

The Convention on the Taking of Evidence Abroad in Civil or Commercial
Matters, 23 U.S.T. 2555, T.I.A.S. No. 7444, July 27, 1970 [1972] (Hague Evidence
Convention), is an international treaty designed to bridge the difference
between the common law and civil law approaches to the taking of evidence
in civil and commercial transnational disputes. Most common law countries
will provide assistance under the Hague Evidence Convention in civil tax cases
pending in a court within the United States. Many civil law countries, however,
consider tax matters as “fiscal”
matters that are not
within the scope of the Convention. There are several foreign jurisdictions
that have not signed the Hague Evidence Convention, but nonetheless have enacted
laws that provide for similar assistance to a foreign applicant, e.g., the
Bahamas Evidence (Proceedings in Other Jurisdictions) Act 2000 and the British
Virgin Islands Evidence (Proceedings in Other Jurisdictions) Act (1991).

Branch 7 of the Associate Chief Counsel (International) provides assistance
to Field Counsel offices in the preparation of requests under the Hague Evidence
Convention as well as enabling statutes that provide for similar and often
a broader scope of assistance. The form of the application to a court for
letters of request assistance under the Convention is similar to that of letters
rogatory (Exhibit 35.11.1–102). Rather than requiring transmittal of
the request through diplomatic channels, however, the Convention has a much
more streamlined procedure for sending the letters of request directly to
the Central Authority in the foreign jurisdiction, which is usually a designated
official within the Ministry of Justice in the foreign country that will seek
to enforce the request. The Central Authority for the United States is the
Department of Justice, Office of Foreign Litigation.

Pursuant to Chapter I of the Hague Evidence Convention, a litigant may
request the court where the action is pending to transmit a Letter of Request
to the Central Authority in the foreign country where the evidence is located
requesting such authority to obtain evidence or to perform some other judicial
act. The Central Authority, selected by the foreign government, then transmits
the request to the appropriate court or authority, which conducts the evidentiary
proceeding. Upon request, the foreign court will conduct the evidentiary proceeding
under the procedures designated by the requesting court, unless those procedures
are incompatible with internal law of the requested state.

It is possible to use Tax Court discovery, including depositions, to
obtain information and evidence from abroad. In Gerling International
Insurance Company v. Commissioner, 86 T.C. 468 (1986)
rev’d on other grounds, 839 F.2d 131 (3d Cir. 1988), the Tax
Court ordered the taxpayer, a domestic corporation, to make available to the
Service the books and records of a Swiss corporation that reflected the premiums,
losses, and expenses at issue, which the taxpayer claimed arose out of a reinsurance
agreement it had with the Swiss corporation. The Tax Court rejected the taxpayer’s
contention that it could not produce such records because it lacked control
over the Swiss corporation, noting that as a Delaware corporation, the taxpayer
was required to, and did, report the information sought by the Service to
the insurance regulatory authorities of Delaware. Although the Tax Court in Gerling ordered the taxpayer to produce the records, the court
also stated that if the taxpayer failed to produce such records, then the
taxpayer would be precluded from introducing the records, or any information
derived from such records, into evidence.

There are four methods of taking depositions abroad: by stipulation
of the parties, on notice, by commission, and pursuant to a letter rogatory.
Each method has drawbacks and benefits, depending on the country and circumstances
involved. These include convenience to the parties, the type of litigation
involved, the identity of the witness and where the deposition is to be taken.
Location of the deposition may be the most important because judicial and
quasi-judicial actions are severely restricted in many foreign countries.

Deposition by Stipulation of the Parties. The Tax Court Rules provide
for the taking of deposition pursuant to a stipulation. In the Tax Court the
use of a stipulation obviates the need for obtaining leave of court to take
a deposition to perpetuate testimony. The deposition must conform in all other
respects to the requirements of the Tax Court rules. T.C. Rules 81(d), 74(f).

Deposition on Notice. Under this procedure, the party desiring to take
a deposition serves a notice of the taking of the deposition upon the other
party. The notice identifies the person before whom the deposition will be
taken. Fed. R. Civ. P. 28(b)(1) provides for the taking of a deposition abroad
on notice before a person authorized to administer oaths in the place in which
the examination is held, either by the law thereof or by the law of the United
States. T.C. Rule 81(e)(2) is to the same effect. Depositions on notice, like
depositions by stipulation, do not require the intervention of either the
United States or foreign courts. This procedure offers another simple and
relatively fast method of obtaining testimony abroad for use in a United States
court.

Deposition by Commission. A commission is an order issued by the court
before which the action is pending, appointing an individual to take the deposition
of witnesses who are beyond the jurisdiction of the court. Fed. R. Civ. P.
28(b)(2) provides that depositions may be taken abroad before a person commissioned
by the court, and the person so commissioned shall have the power by virtue
of his commission to administer any necessary oath and take testimony. To
the same effect is T.C. Rule 81(e)(2). The commission may provide that the
deposition be taken by oral examination, written interrogatories, or some
variation of these methods. The commission procedure differs from the procedures
described above primarily in that it requires the court to appoint the person
before whom the testimony is to be taken. This may be crucial in countries
where depositions on notice before consular officials are not permitted. Like
the stipulation and notice procedures, an advantage of taking depositions
under commission is that they will necessarily conform to the procedural requirements
of the United States court. In addition, in some common-law countries compulsory
process is made available to the service upon petitioning the foreign tribunal.
In those countries which regard the taking of testimony as a sovereign function,
however, the use of the commission is unavailable.

Letters Rogatory. Since many foreign countries place restrictions on
the judicial and quasi-judicial actions which may be taken within their territory,
these countries may not allow depositions by stipulation, notice or by commission.
In this situation, it will generally be necessary to resort to the use of
letters rogatory for foreign depositions. T.C. Rule 81(e)(2).
See CCDM 35.4.5.3.2.

There are two methods of authenticating foreign public documents. One
is the method set forth in the 1961 Hague Convention Abolishing the Requirement
for Legalization of Foreign Public Documents. The second method must be used
when documents are destined for or coming from a country which is not a party
to the convention and is described in Fed. R. Evid. 902(3).

A foreign public document is one which was signed by an individual in
their official capacity. Such documents include those from a judicial or other
tribunal including the public prosecutor, clerk of court, or process server,
administrative documents, notarial acts, or private documents bearing official
certifications such as a certificate of registration on official authentication
of a signature.

Hague Convention. The 1961 Hague Convention Abolishing the Requirement
of Legalization for Foreign Public Documents simplifies the certification
of documents originating in foreign countries to entitle them to recognition
in the United States.

One of the problems most frequently encountered in handling tax cases
involving international aspects is the authentication of foreign business
records. Frequently, it is usually easier to obtain copies of the records
or excerpts from the records than it is to obtain such copies in admissible
form. A typical reason involves the inability of the United States to compel
the custodian of the records to provide authenticating testimony. Where authentication
of business records is necessary, there are several possible approaches.

U.S. authorities may obtain a foreign certification for foreign business
records through a treaty or TIEA request, a letter rogatory, or a letter of
request. An example of the form that may be used by U.S. authorities for making
a request for certification to foreign countries is at as follows:

Commercial paper. Under Fed. R. Evid. 902(9) commercial paper and related
documents are considered self-authenticating to the extent provided by general
commercial law. For all practical purposes general commercial law can be found
by reference to the Uniform Commercial Code (U.C.C.). Federal commercial law
will apply where federal commercial paper (e.g., Treasury notes) is involved.
Pertinent U.C.C. provisions are sections 1–202, 3–307, 3–510,
and 8–105. Fed. R. Evid. 902(9) may prove useful and should be considered
whenever originals or copies of negotiable instruments, securities, bills
of lading, and other commercial paper and related documents are needed as
evidence and authenticating testimony is not readily obtainable.

Affidavit. In United States v. Leal, 509 F.2d
122 (9th Cir. 1975), the court admitted certain business records into evidence
under the Federal Business Records Act, 28 U.S.C. § 1732 (1970), where
the foundation was laid, over the objections of the defendant, by an affidavit
of the custodian of the records. Although the method followed in the Leal case would appear to provide an attractive alternative
to the somewhat cumbersome process described in 18 U.S.C. § 3491, et
seq., there are no cases outside of the Ninth Circuit in which such a procedure
has been followed. The records in Leal were hotel registration
records required to be maintained by the laws of the Crown Colony of Hong
Kong. The court found that many of the guarantees of trustworthiness underlying
the official documents and business records exceptions to the hearsay rule
were inherent in the documents. Fed. R. Evid. 803(24) was prescribed since Leal was decided. This exception may be appropriate where
documents in question are similar to those at issue in Leal
. In United States v. Miller, 830 F.2d 1073,
(9th Cir. Cal. 1987), the issue is whether the bank records here sought to
be admitted under 18 U.S.C. § 3505 against the defendant bear the indicia
of reliability. A statement made by the vice director of the bank certifies
the authenticity and accuracy of the records and that they were kept in the
ordinary course of business and prepared at or around the time the events
occurred by a person familiar with those matters or on the basis of information
given by such person. The court held that the records bear indicia of reliability,
and that the admission of business records is a firmly rooted exception to
the hearsay rule. See also United States v. Bernard S.,
795 F.2d 749 (9th Cir. 1986). In Karme v. Comm’r,
73 T.C. 1163 (1980), aff’d, 673 F.2d 1062 (9th
Cir. 1982), based on the particular facts of the case, the Tax Court held
that records of a Netherlands Antilles Bank made available to an Internal
Revenue Service special agent under the United States — Netherlands
Income Tax Convention have circumstantial guarantees of trustworthiness and
are admissible under the exception set forth in rule 803(24).
See also United States v. Nivica, 887 F.2d 1110 (1st Cir. Mass. 1989)
(based on testimony on chain of custody and the circumstances surrounding
preparation of the records, the court held that the records were admissible); United States v. Pelullo, 964 F.2d 193 (3d Cir. Pa. 1992)
(bank documents like other business records provide circumstantial guarantees
of trustworthiness because the banks and their customers rely on their accuracy
in the course of their business); United States v. Wilson,
249 F.3d 366 (5th Cir. Tex. 2001) (guarantees of trustworthiness of bank records
extended to foreign bank records).

Authentication by Testimony from Foreign Government Official. If the
foreign business records were obtained by operation of law by foreign officials,
it may be possible to obtain the necessary authenticating testimony from a
knowledgeable foreign official who is willing to testify in this country.

Letters Rogatory. If the authenticating witness declines to give his/her
testimony or statement voluntarily, and if jurisdiction cannot be obtained
by use of 28 U.S.C. § 1783, it may be possible to proceed by means of
a of letter rogatory and have the requested court propound appropriate questions
to the witness which will establish the authenticity of the business records. See CCDM 35.4.5.3.2.

Available sources of material on foreign law include local university
and law libraries, as well as computerized legal research data bases such
as LEXIS. The Library of Congress maintains the statutes of many countries
and some case law and employs a staff of foreign law experts. The Martindale-Hubbell
Law Directory, available online, contains a general discussion of the law
of many countries. The Department of State, Office of Consular Services maintains
lists of English speaking attorneys in different countries. In addition, foreign
law experts may be identified by seeking the assistance of the Tax Attachs
and through requests to treaty partners under the exchange of information
provisions of the various tax conventions.

If difficulty is experienced in locating the foreign law or determining
how it should be applied, then the Associate Chief Counsel (International),
Branch 7 and the office of the Director, International (LMSB) may be contacted.
They may provide assistance in locating the foreign law and source material
as well as in identifying law experts in particular fields of law in particular
countries. Field attorneys are requested to furnish copies of material developed
by them involving foreign law issues so that this information may be passed
on to other offices saving time and assuring that consistent positions are
taken.

In addition to the sources mentioned above and the assistance which
the Associate Chief Counsel (International) is able to provide, foreign law
is subject to discovery under Tax Court Rules 70(b) and 146.

The request from Field Counsel for foreign evidence or factual information
must be in memorandum form, addressed to the Director, International (LMSB)
through the Associate Chief Counsel (International), Branch 7 setting forth
the following matters:

Every effort should be made to forward requests for information located
abroad as soon as it appears that such information will be required even before
the case appears on a trial calendar. Field attorneys should be aware that
where a foreign government is to provide information, the Service depends
entirely on that country’s cooperation. Accordingly, timely responses
to requests that are not made well in advance of any scheduled trial cannot
be guaranteed. If time constraints are severe, the Associate Chief Counsel
(International), Branch 7 may be contacted by telephone to determine whether
arrangements can be made to meet deadlines.

The Associate Chief Counsel (International), Branch 7 serves as a repository
of information on foreign law, both procedural and substantive, in order to
maintain a base of source material for dissemination to Field Counsel desiring
assistance.

Field Counsel should provide the Associate Chief Counsel (International),
Branch 7, with copies of all materials developed by them (briefs, memoranda,
advisory opinions and reports of experts, responses to discovery, etc.) involving
foreign law issues (whether procedural or substantive).

When a summons or subpoena has been issued or a request made for production
of documents which relate to evidence or factual information located abroad,
the Associate Chief Counsel (International), Branch 7 should be told the success
or failure of such measures.