News Article

The Canadian taxman: A lesser foe than his American counterpart?

Posted: June 27, 2012

Aggrieved Canadian corporate taxpayers are much more likely to get cases heard in the highest court of the land than their American counterparts. And a recent study shows the Internal Revenue Service (IRS) ó the U.S. equivalent of the Canada Revenue Agency (CRA) ó has a better chance of succeeding than corporate taxpayers, for a few reasons.

The study, conducted by two U.S. tax scholars, Joshua Blank, faculty director of the graduate tax program at New York University Law School, and Nancy Staudt, a tax scholar at the University of Southern California Gould School of Law, looked at more than a century of tax-abuse cases that went to the U.S. high court. The 69-page study, entitled "Corporate Shams,î will be published in the New York University Law Review in December.

According to Reuters news agency, which reported on the study, from 1909 to 2011, 919 income tax cases reached the U.S. Supreme Court. Of those, 364 involved corporations. In cases involving blatant abuse of the governing act, the IRS won 61% of the time. In all other circumstances, the IRS prevailed 68% of the time.

A look at Canadian statistics tells a similar story. From 1920 to 2003, the Supreme Court of Canada (SCC) heard 356 corporate income tax cases; the CRA won about 66% of the time and corporations a third. SCC cases from 2004 to 2012 reveal no significant change.

But these numbers do not tell the whole tale. In the U.S., the study tells us, only about 2% of all applications to the U.S. Supreme Court are granted, indicating how hard is the road aggrieved corporate taxpayers must travel. In Canada, the SCC's leave-to-appeal statistics tell another story.

The SCC statistics reveal that slightly more than 12% of leave applications in Canada are granted ó a far cry from 2%. That means, ultimately, corporations ó as well as other aggrieved taxpayers ó are up to six times more likely to succeed in their cases before the SCC than in cases before the Supreme Court of the U.S.

Greer Jacks is updating jurisprudence in the EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.