Lowy v Washington

PETER LOWY, the US-based son of the billionaire Frank Lowy, has launched legal action against the US tax department in a bid to garner more information about long-running tax investigations into the Lowys by Australian and US authorities.

In what appears to be his first public response to explosive, but as yet unproved, allegations by the US government in mid-2008 that members of the Lowy family were engaged in tax evasion, Peter Lowy and his wife, Janine, through their lawyers, claim the Internal Revenue Service has relied on incomplete and "likely inauthentic" information.

The couple suggest that the Australian Tax Office "may have provided erroneous or incomplete information on which the IRS has formed its conclusions".

Mr and Mrs Lowy are suing the IRS in the US District Court in California over the US tax office's refusal to hand over thousands of pages of documents that they first requested under US freedom-of-information laws in October 2008.

Their FOI request was initiated three months after the US Senate Permanent Subcommittee on Investigations, which was probing the use of tax havens by US citizens, alleged that the Liechtenstein-based LGT Bank earlier this decade helped "the Lowys hide their beneficial interest in a foundation with $68 million in assets".

At the time of the US Senate subcommittee allegations, the family patriarch, Frank Lowy, issued a statement denying any Lowy family member received distributions or personally benefited from what they called the Liechtenstein structure. When he was called before the Senate subcommittee on July 25, 2008, Peter Lowy, a US citizen, invoked the Fifth Amendment, entitling him to remain silent.

This year, however, in court documents filed as part of the FOI challenge, Mr Lowy, through his lawyers, says that contrary to US tax authorities assertions, neither he nor his wife, nor a Delaware-registered company that they control, Beverly Park Corporation, stood to benefit from a foundation called Luperla, which was based in the tax-haven Liechtenstein.

Mr Lowy has told the court that US tax authorities have misunderstood the association of the broader Lowy family with the Luperla Foundation and have a misimpression [sic] of Luperla.

The IRS has relied, at least in part, on unverified, incomplete, unreliable and likely inauthentic [sic] information to reach its erroneous conclusion, the Lowys claim in the court documents.

They want the court to order the IRS to hand over all records involving communications between it and the ATO, the Commissioner of Taxation, the federal government or the Commonwealth of Australia relating in any way to Peter and/or Janine Lowy.

They say that it was through their dealings with the IRS that they learnt the US tax offices investigation into connections between other Lowy family members based in Australia and Luperla was part of some joint effort or exchange of information between the IRS and Australian authorities.

On information and belief, the IRS and the ATO, as well as other Australian government authorities, had begun to share information concerning the Luperla Foundation transaction, the Lowys say in the court documents. It is not clear under what authority and proper procedure the IRS and the ATO are exchanging information and coordinating their activities. Mr and Mrs Lowy also seek all IRS records about them that relate to the US Senate subcommittee that has been probing the activities of taxhaven banks and US tax compliance, and they want all records of any communications between the IRS and the subcommittee that involve them.

They have also requested the name of all third parties that the IRS has contacted in connection with the inquiry by the IRS into the tax affairs of Peter and/or Janine Lowy.

Mr Lowys lawyers in California did not respond to requests for further comment, while in Australia a leading tax lawyer who represents the Lowy family, the Arnold Bloch Leibler senior partner Mark Leibler, declined to comment.

In response to the Lowys initial FOI request, the IRS told the Lowys last July that its officers had identified 12,034 pages of documents fitting their FOI request, but it released only 4925 pages. The Lowys want the court to order the immediate release of the remaining 7109 pages.

The IRS told the Lowys that of the 7109 pages it withheld, 6742 pages related to tax treaty information and that information obtained from a foreign country under a tax treaty is protected from exposure under FOI.

In documents filed with the court on March 29, the IRS admitted it had exchanged information about the Lowys with the ATO.

According to the Lowys court filings, they were interviewed by both Australian and US tax authorities, they have given the IRS documents that support their position and refute the IRSs claims, but they say it is difficult to rebut that which one has not seen.

Obtaining the information on which the IRS has relied or that which it has received should disprove that [the Lowys and Beverley Park Corporation] have any connections to the Luperla Foundation and any financial or tax responsibility resulting from that entity. The court process in California requires the Lowys and the IRS to explore options for mediating the dispute ahead of any trial. Steps towards mediation are continuing.