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November 5, 2004 - Phil Hodgen

Supreme Court hearing today: Pasquantino v. United States

There’s a really interesting case to be argued November 9 in the Supreme Court: Pasquantino v. United States.

A general principle of international law that says one country’s courts won’t enforce another country’s tax laws. Put another way, the Canadian government can’t sue someone in U.S. courts to collect Canadian taxes.

The Pasquantino case involves three gentlemen who dodged Canadian and Province of Ontario taxes on the importation and sale of liquor. They were prosecuted and convicted in the U.S. of wire fraud. Appeals follows, and today they get their day in in the Big Time: the U.S. Supreme Court.

Mr. Pasquantino (actually there are two of them in this case) achieved immortality in the legal universe. Immortality for lawyers is defined as a Supreme Court case bearing your name as a party. I’m not sure this is what Mr. Pasquantino’s mother expected her son to achieve when he grew up. But I digress. . . .

Mr. Pasquantino is claiming that the principle (U.S. courts won’t enforce foreign tax claims) prohibits the U.S. from pursuing a wire fraud conviction against him. His theory is this: “You (the U.S. government) can’t prosecute me for cheating the Canadians out of tax. Therefore the money is clean from a U.S. law perspective. So how can you convict me for wire fraud when the money I made is clean?”

(I vastly oversimplify, of course).

I care about this because I do a lot of tax planning for nonresidents of the United States. I help them minimize their U.S. taxes while keeping everything completely legal and fully compliant with U.S. tax laws. However, what happens if they are not fully reporting income back to their home country? If they are breaking the tax laws of their home country, can Bad Things Happen to them in United States as well?

The Pasquantino opinion is going to give a bit of guidance on this point, I hope.

Update 11 February 2005: Here is a link to the petitioner’s brief, the respondent’s brief (that’s the U.S. government), and the petitioner’s reply brief. Warning: all are PDFs.

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