Why is the IRS Collecting Taxes for Denmark?

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The United States has bilateral tax treaties with many countries. Of all the tax treaties the United States has only five have a provision that allows each country to the treaty to collect outstanding liabilities of the other party to the treaty as I discussed in an earlier post.  One of the five countries that has a collection treaty with the United States is Denmark.  The other four are Canada, France, the Netherlands and Sweden.  This post discusses the recent case of Torben Dileng v. Commissioner in which the Danish taxpayer brought suit in the District Court for the Northern District of Georgia seeking an order to stop the IRS from collecting the taxes he owes to the Danish government.  These cases appear only rarely in the United States or in the courts of our treaty partners.  The case deserves attention because it demonstrates how the IRS can and will go about collecting the taxes owed to a treaty partner and it provides a basis for raising again why the United States only has the collection provision in five of its bilateral treaties and does not make an effort to routinely include this provision into tax treaties.

One argument against inserting collection language in treaties is that the United States has done more to collect for its treaty partners than those partners have done to collect for the United States. Even if this is true, it misses the mark that the United States should lead in insuring global collection of taxes just as it took the lead in FATCA.  If the United States ends up spending more resources to collect taxes for Denmark than it causes the Danish tax authorities to expend in collecting taxes for the United States, that also does not mean that the net expenditure did not benefit the United States.  If we eliminate places for persons seeking to hide from paying their taxes, all countries will benefit and perhaps domestic collection will increase.  If by failing to enter into treaties covering the collection side of tax compliance, we make it easy for high income, sophisticated taxpayers to move money and hide from tax collection, we degrade overall compliance.


Mr. Dileng did business in Denmark before moving to Atlanta and incurred a liability for approximately $2.5 million. While the liability exists, he continues to contest it in Denmark and that fact becomes important in thinking about what the IRS can and should do to assist Denmark with respect to this tax.  Denmark made the appropriate formal request to the United States to initiate collection under the treaty and the IRS informed Mr. Dileng that to fulfill its treaty obligation it intended to levy on his assets.  He did not get the opportunity to have a Collection Due Process hearing to discuss whether other less intrusive ways might exist to collect the tax but Mr. Dileng did not think collection of the tax by levy in the United States worked best for him while he was still fighting about the liability in Denmark.  He asked that the IRS hold off collection until the litigation in Denmark over the liability ran its course.  He stated that collection of the liability by levy “would be financially ruinous” and “destroy his ability to care for his family…”

He brought suit to enjoin the IRS from collecting and the IRS filed a motion to dismiss for lack of jurisdiction. The IRS argued that Congress had not waived sovereign immunity to allow a plaintiff such as Mr. Dileng to bring suit to enjoin it.  Here the treaty required that the Danish revenue claim “be treated like U.S. federal income taxes for purposes of domestic U.S. law.”  Mr. Dileng argued that certain judicially created exceptions to the Declaratory Judgment Act (DJA) and the Anti-Injunction Act (AIA) applied to allow him to raise defenses.  The District Court then stopped and analyzed the application of the DJA and AIA to the circumstances of this case.  First it looked at the treaty where it found that the IRS had to treat the revenue claim certified by a treaty partner as if it were an assessment of taxes in the United States.  Although Mr. Dileng acknowledged that very limited exceptions exist allowing a taxpayer to avoid the application of the anti-injunction act, he felt that one of the exceptions applied to him.  The district court disagreed.  It first looked at the exception created by the Supreme Court in Enochs v. Williams Packing & Nav. Co.  It found that this exception did not apply because Mr. Dileng could not show that the claim totally lacked merit.  “Plaintiff does not and cannot show that the ‘claim of liability [is] without foundation.’ … Plaintiff here does not challenge the underlying validity of the Taxes in the United States, and does not assert in his Complaint, or in his Response, that there are no circumstances under which he can be found liable for the Taxes in Denmark.”

Mr. Dileng next argues that the taxes lack the finality required by the treaty. Article 27 at paragraph 2 of the treaty provides that “a revenue claim is finally determined when the applicant State has the right under its internal law to collect the revenue claim and all administrative and judicial rights of the taxpayer to restrain collection in the applicant State have lapsed or been exhausted.”  Because Mr. Dileng has ongoing litigation in Denmark concerning the taxes, he argues that the finality provision of the treaty does not exist in his circumstances.  The Court found that his claim of lack of finality for purposes of the treaty is not supported by Danish law.  In the Danish case he seeks to have Denmark forebear from collecting the tax.  He did not show that bringing the action in Denmark necessarily means that the taxes may not currently be collected by the Danish tax authorities and, in fact, his plea for forbearance of collection suggests just the opposite.  Denmark certified the taxes are “finally determined” which does not necessarily mean that Mr. Dileng has no avenues for continuing to contest the taxes.  In a similar situation in the United States an assessment of a tax liability could exist and provide the IRS with full rights of collection while the taxpayer retains the right to bring a refund suit at some point in the future and contest the amount of the liability.  The treaty does not require that the taxpayer have no remaining avenue to contest the tax but rather that the country have the full right to collect.

Next, Mr. Dileng contests the collection of the debt in the United States based on due process. He argued that the Danish court where he continues to fight has the equivalent status of the United States Tax Court and that collection should not begin because of the injunction in 6213 against collection during a Tax Court case.  Unfortunately, no authority exists for this argument and it appears that the Danish case is not a preassessment proceeding.  So, he also lost this argument which was the last of his arguments under Williams Packing but he also argued for an injunction under the exception to the AIA created by the Supreme Court in South Carolina v. Regan based on his lack of remedy elsewhere.

The Supreme Court in Regan found a limited exception to the AIA where the state had no other means of challenging the application of the statute. Here, the taxpayer has a forum in Denmark in which to challenge the statute and he seeks in the United States to challenge the collection of the tax rather than the underlying tax.  The narrow Regan exemption does not apply to these circumstances.  Thus, he loses on both of his attempts to find an exception to the AIA.  The opinion does not provide insight into what assets Mr. Dileng has in the United States from which the IRS can collect or what action the IRS intends to take to collect.  The case merely shows that he does not have the power on these facts to stop the IRS from collecting under the treaty based on the AIA or the DJA.  Since so few cases exist shedding any light on the collection by the IRS under the treaty provisions, the case is interesting from that aspect alone.

The obvious answer to the question in the title is that the United States is collecting taxes for Denmark because we have a treaty obligation to do so just as Denmark has a corresponding obligation to collect for us. The broader question is whether this treaty agreement represents a model the United States should seek to replicate on a broader scale or is simply one of five historically anomalous treaty provisions.


  1. Deborah Percell says

    Thanks for the informative post. If the treaty provision in this case prevents the abuse of sheltering income for legal taxes owed to Denmark I would assume that the converse is true; that an American seeking to prevent paying legal taxes owed to the US would also be denied by the treaty agreement under Danish law. I agree that by enabling one to escape legal taxes owed harms overall compliance of those who do pay their taxes and are left wondering why. In addition for those who do pay their taxes the burden of the underpayment is added to their tax burdens.

  2. Barry Goldwater says

    I have a feeling this taxpayer will be voting for Donald Trump.

    “I don’t know anyone who would be comfortable with someone who behaves this way having his finger on the button,” Cruz continued. “I mean, we’re liable to wake up one morning and Donald, if he were president, would have nuked Denmark. That’s not the temperament of a leader to keep this country safe.”

    But to weigh in on Keith’s question at the end of the post, no we should not replicate it. It is a disaster between the federal government and the states and a disaster among the states. And a disaster here. It adds extra layers of complication and waste. I vote no. (unless he is allowed a CDP Hearing – a good one, not the thoughtless, rubber-stamped junk we get these days from Appeals.)

  3. Can our five tax collection treaties comport with the tax collection constitutional clause. That clause provides:

    “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States….”

    How does the tax collection constitutional clause extend to and include foreign nations? The federal government cannot do indirectly by treaty what it cannot do directly through the tax collection clause.

    You may proceed, Mr. Dileng.

  4. Thanks for an interesting post. A couple of thoughts:

    1. Your post includes:

    ” … it misses the mark that the United States should lead in insuring global collection of taxes just as it took the lead in FATCA.”

    In practice the the effect of FATCA is to enforce the U.S. practice of “citizenship-based taxation” on the citizens and residents of other nations. U.S. citizenship is conferred by birth in the United States. There are a very very large number of “U.S. born” people living all around the world. In most cases their ONLY connection to the United States is a “U.S. place of birth”. For all practical purposes they are citizens and residents of other nations. They are often referred to as “accidental Americans”. What is happening is that the FATCA IGAs (FATCA in it’s original form exists in name only) are identifying people with a U.S. place of birth, exposing the fact that they (who could have known) have never filed U.S. taxes and is forcing them into the U.S. tax system. This is the case even when they are full “tax residents” of other nations. In some European nations (example France), French citizens with a U.S. place of birth, are (because of the FATCA IGAs), being denied bank accounts in their own country. To put it another way:

    FATCA is actually enforcing the U.S. system of “place of birth taxation” on the citizens and residents of other nations. By doing so, it effectively imposes a U.S. tax on the economies of any nation that has “U.S. born people” among its residents.

    This raises the question of whether the United States, via FATCA, should be attempting to enforce U.S. taxation, on the citizens and residents of other nations, whose only connection to the United States is a place of birth.

    2. You note that there are five countries that via treaty – agree to an abrogation of the “revenue rule and provides the United States with the “assistance in collection” of U.S. taxes. Because of U.S. “citizenship-based taxation”, this “assistance in collection provision” can be used to enforce U.S. “citizenship-based taxation” on those who are actual residents (and often citizens) of other nations. To put it another way: the U.S. can use the tax treaty to approach another country and say: Hello, but these specific people are U.S. citizens residing in your country. Because they are U.S. citizens they have tax obligations to the United States even though they are tax paying residents of your country. The tax treaty requires YOU to deplete your tax based by assisting the United States in imposing taxation on these people. We understand that this will result in double taxation and on a transfer of wealth from your country to the U.S. Treasury. But, we will NOT allow “U.S. born people” to live outside the United States without paying taxes to the United States.

    My point is this:

    The “assistance in collection” mechanism in these five treaties can and will be used to allow the United States to enforce direct taxation on those who are “tax residents” of other nations AND on the economies of those other nations.

    Given the U.S. practice of “citizenship-based taxation” I can’t understand why any country would enter into an “assistance in collection” treaty with the United States. Interestingly the Canada U.S. Tax Treaty does create an exemption for those who were Canadian citizens at the time tax debt arose. The Denmark U.S. Tax Treaty has a similar provision exempting citizens of Denmark.

    Conclusion: It is quite clear that tax treaties which include “assistance in collection provisions” (abrogating the Revenue Rule) are overwhelmingly to the benefit of the United States. Only the United States (and the nation of Eritrea) impose taxation based on citizenship (and therefore impose taxation on the residents of other nations). These five treaties allow the United States to extend its tax base into the economies of other nations.

    Interestingly, the 2016 U.S. Model Tax Treaty (unless I have missed it) does NOT include the “assistance in collection” provisions.

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