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The judge denied the “declaratory and injunctive relief” requested by the plaintiffs to stop the initial transfer of information. But he wrote that he did so “without prejudice to their right to pursue their claim” further.

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Deegan and Hillis are represented by Joseph Arvay, a Vancouver lawyer known for mounting constitutional challenges.

Canada created the controversial information-exchange program so Canadian financial institutions could comply with disclosure requirements under a new U.S. law called the Foreign Account Tax Compliance Act (FATCA) while remaining in compliance with Canadian privacy laws.

U.S. tax law requires all so-called “U.S. persons” to file U.S. tax returns, and FATCA was put in place to help collect all taxes owed to the U.S. government. The definition of “U.S. person” is very broad and includes so-called “accidental Americans” who have no real connection to the United States — sometimes because they were simply born there while their parents were traveling, or because they had American parents but left the country at a very young age.

FATCA penalizes non-U.S. financial institutions who refuse to submit information about non-resident U.S. persons to the IRS, but Canadian banks can’t disclose such information without violating Canadian privacy laws. As a result, Ottawa struck a deal in which banks could disclose information to Canada’s tax authority, the Canada Revenue Agency, which is able to collect private financial information. The CRA would then pass this information to the IRS, the U.S. tax authority, each year in September. The agreement is supposed to kick in this month. Court records state that the first exchange of information is to take place on Sept. 23.

Deegan was born in Washington State in 1962, but moved to Canada as a child in 1967. Hillis was born in the U.S. in 1946 and moved to Canada with her Canadian parents in 1951. Neither have lived in the U.S. since arriving in Canada as children, and neither has held a U.S. passport.