PAUL M. RETFALVI, Plaintiff - Appellant,
UNITED STATES OF AMERICA, Defendant-Appellee.
Argued: May 8, 2019
from the United States District Court for the Eastern
District of North Carolina, at Raleigh. James C. Dever III,
District Judge. (5:17-cv-00468-D).
H. Merritt, Jr., BAILEY & DIXON, LLP, Raleigh, North
Carolina, for Appellant.
Anthony T. Sheehan, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Appellee.
Richard E. Zuckerman, Principal Deputy Assistant Attorney
General, Teresa E. McLaughlin, Tax Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C.; Robert J. Higdon,
Jr., United States Attorney, OFFICE OF THE UNITED STATES
ATTORNEY, Raleigh, North Carolina, for Appellee.
NIEMEYER and HARRIS, Circuit Judges, and Ellen L. HOLLANDER,
United States District Judge for the District of Maryland,
sitting by designation.
Hollander, District Judge.
appeal resolves a challenge to the constitutionality of a
treaty authorizing the United States to collect unpaid income
taxes on behalf of Canada. The issue arises in the context of
a tax refund action filed by appellant Paul M. Retfalvi,
M.D., the taxpayer. He filed suit against the United States,
seeking a refund of approximately $125, 000 in taxes
collected from him by the Internal Revenue Service
("IRS"), pursuant to the treaty, for income taxes
that he owed to Canada for 2006.
Retfalvi advances several grounds in support of his challenge
to the constitutionality of the treaty. According to Dr.
Retfalvi, the treaty constitutes a "bill for raising
revenue" that did not originate in the House of
Representatives, in violation of the Origination Clause,
Article 1, § 7, cl. 1. In addition, he argues that the
treaty violates the Taxing Clause, Article I, § 8, cl.
1, which, in his view, confers on Congress the exclusive
right to enact taxing legislation. Further, Dr. Retfalvi
contends that the treaty is not self-executing and is
therefore unenforceable, because it has not been validated by
the requisite implementing legislation. Dr. Retfalvi also
challenges the IRS's legal authority to collect a foreign
assessment on behalf of Canada.
District Court for the Eastern District of North Carolina
rejected these contentions. We affirm.
1980, the United States and Canada executed the Convention
Between the United States of America and Canada with Respect
to Taxes on Income and on Capital, U.S.-Can., Sept. 26, 1980,
1986-2 C.B. 258 (the "Treaty"). It was ratified by
the U.S. Senate in 1984. Article 26 XXVIA ("Article
26A") was added to the Treaty by Article 15 of Protocol
3 and entered into force after the Senate ratified Protocol 3
in 1995. S. Treaty Doc. No. 104-4, 1984 WL 261890.
Article 26A, the United States and Canada agreed to assist
each other with the collection of unpaid taxes. Article 26A,
¶¶ 1, 9. To apply for collection assistance, the
applicant State submits a revenue claim to the requested
State. Id. ¶ 2. The applicant State must
certify that the revenue claim has been "finally
determined" under its laws. Id. Of relevance
here, "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."
requested State decides whether to accept the revenue claim.
Article 26A, ¶ 3. If it accepts the revenue claim, it
must collect the claim as though it were its own finally
determined tax debt. Id. Therefore, a Canadian
revenue claim accepted by the United States is "treated
by the United States as an assessment under United States
laws against the taxpayer as of the time the application is
received." Id. ¶ 4(a). Any monies
collected by the United States are forwarded to Canada.
Id. ¶ 6.
taxpayer retains any rights of review otherwise available
under the applicant State's laws. However, under Article
26A, the taxpayer cannot seek administrative or judicial
review by the requested State of the revenue claim of the
applicant State. Id. ¶ 5.
United States has construed Article 26A as a self-executing
treaty. That is, Article 26A "'operates of itself
without the aid of any legislative provision.'"
Medellin v. Texas, 552 U.S. 491, 505 (2008) (quoting
Foster v. Neilson, 27 U.S. 253, 314 (1829),
overruled on other grounds by United States v.
Percheman, 32 U.S. 51 (1833)); see also ESAB Grp.,
Inc. v. Zurich Ins., PLC, 685 F.3d 376, 387 (4th Cir.
2012) (noting that a treaty can have both self-executing and
taxpayer, Paul M. Retfalvi, is a medical doctor who was born
in Hungary. He moved to Canada in 1988 under a restricted
work permit, and he became a Canadian citizen in 1993. That
same year, Dr. Retfalvi came to the United States on a J-1
visa to participate in a medical residency program. After Dr.
Retfalvi completed his residency in 1997, he returned to
following year, Dr. Retfalvi returned to the United States
under an H1-B visa. To ensure that he would have a place to
live if his H1-B visa was not renewed, Dr. Retfalvi purchased
a small condominium in Vancouver, Canada and signed a
pre-construction contract to purchase a larger one. Through
extensions of his H1-B visa, Dr. Retfalvi continued to reside
in the United States. In 2005, he was granted permanent
resident status from the United States. As Dr. Retfalvi was
no longer planning to reside in Canada, he sold both
condominiums in 2006.
2007, Dr. Retfalvi and his wife filed separate Canadian
income tax returns for 2006. Each return included one-half of
the proceeds of the sale of the condominiums. Dr. Retfalvi
and his wife also reported the sales on their joint federal
income tax return, filed with the IRS.
Canada Revenue Agency ("CRA"), which administers
Canada's tax laws, audited Dr. Retfalvi's tax return
in 2007. In 2008, the CRA sent Dr. Retfalvi a summary of the
audit adjustments, finding that he had improperly reported
the sale of the condominiums. The next year, the CRA sent him
a Notice of Assessment.
response, Dr. Retfalvi filed an untimely objection in
February 2010. Thereafter, in March 2010, he filed a timely
administrative appeal. Then, on June 23, ...