Barquero v. U.S.

• Decision Date: 20 April 1994
• Docket Number: No. 93-7447,93-7447
• Citation: 18 F.3d 1311
• Parties: -1769, 94-1 USTC P 50,188 Julio Roberto Zarate BARQUERO, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Counter-Claimant-Appellee, v. INTERNATIONAL BANK OF COMMERCE, Counter-Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1311

18 F.3d 1311

73 A.F.T.R.2d 94-1769, 94-1 USTC P 50,188

Julio Roberto Zarate BARQUERO, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Counter-Claimant-Appellee, v. INTERNATIONAL BANK OF COMMERCE, Counter-Defendant-Appellant.

No. 93-7447.

United States Court of Appeals, Fifth Circuit.

April 20, 1994.

Andy A. Tschoepe, II, John P. Guillory, Akin, Gump, Strauss, Hauer & Feld, L.L.P., San Antonio, TX, for plaintiff-appellant.

James P. Springer, Dept. of Justice, Tax Div., Gary R. Allen, Chief, Appellate Section, Charles E. Brookhart, Washington, DC, for appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before HENDERSON, ^* SMITH, and EMILIO M. GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Plaintiff Julio Roberto Zarate Barquero ("Zarate") and Counter-defendant International Bank of Commerce ("IBC") appeal the district court's order denying their motion to quash an administrative summons issued by the Internal Revenue Service ("IRS") and granting the government's motion to enforce the summons. We affirm.

I

In 1989, the United States and Mexico signed a Tax Information Exchange Agreement ("TIEA"). ¹ In 1991, the "competent authority" of Mexico requested pursuant to the TIEA that the IRS ² provide information regarding Zarate's tax liability under the laws of Mexico. Pursuant to that request, the IRS served IBC with an administrative summons requesting all records in IBC's possession pertaining to bank accounts held or controlled by Zarate. Zarate filed a petition with the district court to quash the summons, which the government answered. The government also filed a counterclaim seeking to enforce the summons and adding IBC as a defendant. Both parties then sought summary judgment. After a hearing, the district court denied the motion to quash and granted the motion to enforce. Zarate and IBC now appeal, arguing that the district court erred in several respects.

II

Zarate initially contends that the United States--Mexico TIEA is unconstitutional because Congress has not authorized the President to enter into such agreements. Section 274(h)(6)(C) of the Internal Revenue Code authorizes the Secretary "to negotiate and conclude an agreement for the exchange of information with any beneficiary country." 26 U.S.C. Sec. 274(h)(6)(C). It is undisputed that Mexico is not a "beneficiary country" as that term is defined by section 212(a)(1)(A) of the Caribbean Basin Economic Recovery Act--19 U.S.C. Sec. 2702. ³ See 26 U.S.C. Sec. 274(h)(6)(B). Zarate thus concludes that the TIEA between the United States and Mexico is unconstitutional because the President lacked the authority to enter into it.

The government, on the other hand, argues that the 1986 amendments to the Code provided statutory authorization for the U.S.--Mexico TIEA. ⁴ Specifically, the government points to Sec. 927(e)(3) of the Code, which provides that

the term ["foreign sales corporation" ("FSC") ] shall not include any corporation which was created or organized under the laws of any foreign country unless there is in effect between such country and the United States--

(A) a bilateral or multilateral agreement described in section 274(h)(6)(C) (determined by treating any reference to a beneficiary country as being a reference to any foreign country and by applying such section without regard to clause (ii) thereof) ⁵....

26 U.S.C. Sec. 927(e)(3) (emphasis added). While acknowledging that Congress did not explicitly amend Sec. 274(h)(6)(C) by amending Sec. 927(e)(3), the government nonetheless contends that Sec. 927(e)(3) authorizes the President to enter into TIEAs with non-beneficiary countries. We agree.

Prior to 1986, only beneficiary countries that had entered into TIEAs with the United States could serve as host countries for FSCs. ⁶ However, Congress, through the 1986 amendments, opted to allow any foreign country to enter into a TIEA and become eligible to be a host country:

The 1986 [Tax Reform] Act provided that a country may qualify as a host country for foreign sales corporations (FSCs) by entering into an exchange of information agreement of the type provided for in the Caribbean Basin Economic Recovery Act, whether or not that country is eligible to be a CBI beneficiary country.... [W]here a country other than a CBI beneficiary country enters into a bilateral information exchange agreement of the type that qualifies it as a FSC host country ..., the bill provides express protection to individuals who make disclosures in accordance with the terms of the agreement from Code sanctions for unauthorized disclosures.

S.Rep. No. 445, 100th Cong., 2d Sess. 332 (1988), reprinted in 1988 U.S.C.C.A.N. 4515, 4843-44 (emphasis added). ⁷ If the Executive lacked the power to enter into TIEAs with non-beneficiary countries, the 1986 amendment to Sec. 927(e)(3) would serve no apparent purpose--an absurd result. ⁸ Thus, we believe that Secs. 274(h)(6)(C) and 927(e)(3), when read together, provide specific congressional authorization for the President's decision to enter into the challenged TIEA. ⁹ Consequently, the TIEA "is 'supported by the strongest of presumptions and the widest latitude of judicial interpretation, and the burden of persuasion would rest heavily upon any who might attack it.' " Dames & Moore v. Regan, 453 U.S. 654, 101 S.Ct. 2972, 69 L.Ed.2d 918 (1981) (quoting Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 637, 72 S.Ct. 863, 871, 96 L.Ed. 1153 (1952) (Jackson, J., concurring)). "Under the circumstances of this case, we cannot say that [Zarate] has sustained that heavy burden." Id. Accordingly, we find that the U.S.--Mexico TIEA is both constitutional and valid. ¹⁰

Although we conclude that Secs. 274(h)(6)(C) and 927(e)(3) constitute specific congressional authorization to the President to enter into the TIEA at issue, we alternatively find that these sections of the Code provide "implicit approval" for the President's actions. ¹¹ The Supreme Court has noted that a "failure of Congress specifically to delegate authority does not, 'especially ... in the area[ ] of foreign policy ...,' imply 'congressional disapproval' of the action taken by the Executive." Dames & Moore, 453 U.S. at 678, 101 S.Ct. at 2986 (quoting Haig v. Agee, 453 U.S. 280, 291, 101 S.Ct. 2766, 2774, 69 L.Ed.2d 640 (1981)) (some alterations in original). Instead,

the enactment of legislation closely related to the question of the President's authority in a particular case which evinces legislative intent to accord the President broad discretion may be considered to "invite" "measures on independent presidential responsibility." At least this is so where there is no contrary indication of legislative intent and when ... there is a history of congressional acquiescence in conduct of the sort engaged in by the President.

Id., 453 U.S. at 678-79, 101 S.Ct. at 2986 (quoting Youngstown, 343 U.S. at 637, 72 S.Ct. at 871 (Jackson, J., concurring)). Here, the 1986 amendment to Sec. 927(e)(3) constitutes an "invitation" for the President to enter into TIEAs with non-beneficiary countries. ¹² Cf. id., 453 U.S. at 680, 101 S.Ct. at 2987 ("By creating a procedure to implement future settlement agreements, Congress placed its stamp of approval on such agreements."). Moreover, there exists a history, albeit a short one, of congressional acquiescence in the President's concluding TIEAs with non-beneficiary countries, and Congress has not questioned the power of the President to conclude such agreements. ¹³ Indeed, the Senate appears to have given its explicit approval to the TIEA at issue when it ratified the United States--Mexico comprehensive income tax convention in November 1993. ¹⁴ Consequently, we believe that the Executive did not exceed its power by entering into the TIEA with Mexico.

III

Zarate next argues that even if the TIEA is valid, the IRS lacks the authority to issue a summons on behalf of a request by Mexico pursuant to the TIEA. The IRS contends that it may use the powers and authority granted to it under chapter 78 of the Code, 26 U.S.C. Sec. 7601 et seq., to obtain information and documents requested by the competent authority of a country that has a TIEA with the United States. See United States v. Stuart, 489 U.S. 353, 109 S.Ct. 1183, 103 L.Ed.2d 388 (1989) (upholding administrative summons issued by IRS pursuant to a request by Canada, which had a tax convention with the United States providing for the exchange of tax information between the countries).

Section 274(h)(6)(D) of the Code provides that the Secretary "may exercise his authority under subchapter A of chapter 78 to carry out any obligation of the United States under an [exchange of information] agreement referred to in [Sec. 274(h)(6)(C) ]." 26 U.S.C. Sec. 274(h)(6)(D). Here, the TIEA with Mexico states:

If information is requested by a Contracting State pursuant to paragraph 4, the requested State shall obtain the information requested in the same manner, and provide it in the same form, as if the tax of the applicant State were the tax of the requested State and were being imposed by the requested State.

Thus, the TIEA obliges the IRS to seek documents from IBC as if the IRS was determining Zarate's American tax liability. Moreover, the TIEA is, pursuant to the cross-reference found in Sec. 927(e)(3)(A), negotiated under Sec. 274(h)(6)(C). Thus, the TIEA obliges the IRS to use its authority under chapter 78 of the Code to obtain the information and documents sought by the Mexican tax authorities. Chapter 78 authorizes the IRS to summon any person the Secretary deems proper "to produce such books, papers, records, or other data ... as may be relevant to" "ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax ..., or collecting any such liability." 26 U.S.C. Sec. 7602(a)(2). Accordingly, the IRS possessed...