LATEST DOJ ATTACK ON OFFSHORE ACCOUNTS: JOHN DOE SUMMONSES ISSUED TO U.S. CORRESPONDENT BANKS OF OFFSHORE BANKS
Posted on 11/20/2013
By now, I’m sure anyone owning an undisclosed offshore bank account has become familiar with the term, “John Doe Summons.” After all, following the IRS issuing a John Doe Summons to UBS, it announced the 2009 OVDP, and about 15,000 taxpayers came through the amnesty doors. The UBS matter hung a cloud of worry over those offshore, a realistic fear that similar summonses would be served on their offshore bank hide-out or new hide-out if they had fled UBS.
Now, those still out in the cold have a new, perhaps more unsettling worry. The Department of Justice has obtained orders from two District Court Judges allowing IRS to issue John Doe Summonses to a number of U.S. Correspondent banks of foreign banks suspected of harboring undisclosed offshore accounts of U.S. taxpayers.
The Internal Revenue Manual (IRM) describes the purpose of a John Doe Summons, “to investigate the tax liability of a specific unidentified taxpayer (or group of taxpayers).”
(IRM 25.5.7.4.1).
IRM 25.5.7.5.2, Example 4 illustrates: “The Service seeks the district court’s authorization to serve a John Doe summons on Bank XY of Pine County to obtain the names of those taxpayers that transferred funds to the Bank of ABC Islands for the period of January 1, 2009 through December 31, 2010. The Service leaned from an offshore voluntary disclosure initiative that several U.S. taxpayers with financial accounts at Bank of ABC islands failed to report interest and other income earned on their accounts with this bank on their original returns. From interviewing these known customers of Bank of ABC Islands, the service learned that bank employees told these customers the bank would not be reporting any income from or the existence of their foreign accounts to the Service.”
Now two district court judges in the Southern District of New York have each signed an “Order Granting Ex Parte Petition for Leave to Serve John Doe Summons(es)” on the following banks:
- JP Morgan Chase Bank
- The Bank of New York Mellon
- HSBC Bank USA,
- Bank of America
- Citibank
The orders follow the language in the IRM and as stated in the DOJ Press Release of November 12, 2012 “direct these five banks to produce records identifying U.S. taxpayers” with accounts at:
- Zurcher Kantonalbank and its affiliates (collectively “ZKB”) in Switzerland, and,
- The Bank of N.T. Butterfield & Son Limited and its affiliates (collectively “Butterfield”) in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland and the United Kingdom.
The DOJ stated that these summonses are a direct result of information obtained by IRS through disclosures made in the three most recent Offshore Voluntary Disclosure Programs started in 2009, 2011 and 2012 (still ongoing). There was also a 2003 Offshore Voluntary Disclosure Initiative that did not include an FBAR miscellaneous penalty but few opted into that initiative.
Further, DOJ stated that the summonses indicate the “Department’s resolve to uncover and identity taxpayers who tried to hide money overseas as a way to avoid federal taxes.”
In issuing summonses to U.S. correspondent banks the IRS and DOJ avert the problem of piercing foreign bank secrecy laws. The information obtained through the summonses will undoubtedly reveal outbound transfers to the targeted offshore banks and inbound transfers from those accounts to the taxpayer accounts at the U.S. correspondent banks.
The bottom line is that the IRS and DOJ continue to expand the means by which to pursue offshore tax scofflaws. Noteworthy is that there has been an IRS pattern of upping the ante to enter the offshore limited amnesty programs following wide media coverage of some new IRS major effort like the UBS John Doe summons which preceded opening of the 2009 program. Therefore, there is no guarantee that the 2012 OVDP will continue endlessly with its present terms and penalty structure.
Thus, taxpayers with an unresolved offshore problem are wise to now seriously consider the 2012 OVDP which offers amnesty from criminal prosecution, relative certainty as to the amount of income tax, income tax and FBAR penalties, and interest to be paid, without being labeled a felon, a convicted tax criminal, all under the shroud of privacy without the embarrassment of disclosing one’s participation to the outside world.
While the OVDP is not right for every taxpayer with an offshore account, it is far and away the best option for most. Right now, many taxpayers in this situation have funds offshore they are afraid to go near. Entering the OVDP allows them to repatriate the funds for use, free and clear of tax liens, after payment of the tax, penalties and interest, and professional fees. Ask yourself: Is it better to theoretically have 100% of a fund you cannot touch; or, some lesser percentage of a fund you can spend safely and freely; and, without fear of prosecution?
© 2013 by Robert S. Steinberg, Esquire
Miami, Florida
Tel. 305–253-2557
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