A federal district court recently upheld administrative summonses for phone records and personal data based upon a request made under a tax treaty. See Tirelli v. United States, No. 25-cv-04105-JSC (N.D. Cal. Aug. 28. 2025) and Caruso v. United States, 25-cv-03395-JSC (N.D. Cal. Aug. 28, 2025); opinions here and here.
Switzerland's Federal Tax Administration is investigating several Italian individuals and their related entities for criminal and civil tax evasion. Under the tax treaty with the United States, Switzerland made an exchange of information request to the Internal Revenue Service ("IRS") seeking records and data from Apple, Inc. ("Apple"), because Switzerland believed that the individuals used Apple's services to exchange information, messages, and documents relevant to their tax investigation.
The IRS issued administrative summonses to Apple for the information, and pursuant to Internal Revenue Code ("IRC") section 7609, gave notice of the summonses to the targeted individuals. In response, the individuals filed petitions to quash the administrative summonses in the U.S. District Court for the Northern District of California.
In their motions to quash, petitioners argued that the IRS summonses were issued for an impermissible purpose. The court disagreed and upheld the IRS summonses. The court started its analysis under the factors enunciated in United States v. Powell, 379 U.S. 48 (1964).
Under Powell, to defeat a motion to quash a summons, the IRS is required to show the summons: (1) was issued for a legitimate purpose; (2) seeks information that may be relevant to that purpose; (3) seeks information not already in the possession of the IRS; and (4) follows all procedural requirements under IRC. Once the IRS meets these requirements, the burden shifts to the petitioner to show the summons was issued in bad faith.
The court ruled that the IRS met each of the Powell requirements. First, the summonses were issued for the purpose of meeting the United States' treaty obligations with Switzerland. Second, the summonses sought information that Switzerland requested pursuant to the treaty, which may be relevant to Switzerland's tax investigations. Third, the IRS did not already possess the records sought by the summonses. And finally, the notice provisions in IRC section 7609 were followed by the IRS.
In trying to show that the summonses were issued in bad faith, petitioners argued that the IRS is not permitted to use its administrative summons power when investigating criminal cases, pointing to IRC section 7602(d), which limits the IRS's administrative summons authority where a case is referred to the U.S. Department of Justice ("DOJ") for criminal prosecution. Because Switzerland is investigating a potential crime, petitioners argued that the summonses were issued for the improper purpose of aiding that criminal investigation.
The court disagreed and ruled that "a Swiss criminal investigation does not demonstrate the IRS's bad faith." The court construed the relevant statutory provisions based on its plain meaning. That is, it can apply only where a case has been referred to the DOJ, which did not happen here.
Petitioners also argued that the summonses impermissibly sought information protected under the European Union's General Data Protection Regulation ("GDPR") because petitioners are Italian citizens. The court ruled that petitioners failed to show that the disclosure of the information sought violated the GDPR and establish how the IRS's disclosure of the information to Switzerland demonstrates the IRS's bad faith in issuing the summonses.
The court enforced the summonses.
Practice Point
These cases are a good reminder of the ability of treaty partners with the United States to get information through the exchange of information procedures. Moreover, treaty requests may not be subject to the same rigors as when the IRS seeks information for its own investigation. Here, Switzerland used its information gathering powers to gather evidence from Apple, a U.S. company, in its criminal investigation of foreign nationals transacting in Switzerland. It is important when receiving an IRS administrative summons to make sure that all of the procedural requirements have been strictly followed and to analyze whether there is a legitimate purpose for the request.
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