Tax Compliance and the Revenue Rule in Prosecutions for Wire and Mail Fraud

Abstract

The “revenue rule” is a “well-settled principle of international law that one nation's courts will not enforce the tax claims of another jurisdiction”.1 The US Court of Appeals for the Second Circuit has recently held, however, that using US foreign or interstate telecommunications to devise a scheme to defraud a foreign revenue authority is wire fraud under US law. In United States v. Trapilo2 the Second Circuit reversed the dismissal of indictments against alleged smugglers charged with using telephones and fax machines to effect tax-evasive importation of alcohol into Canada. Under Trapilo, which conflicts with a contrary First Circuit decision on almost identical facts, 3 the entire breadth of US wire and mail fraud precedent may apply to punish violations of foreign tax laws. Moreover, the decision substantially erodes the revenue rule.