According to a release from the United States Department of Justice, two US District Judges have authorised the Internal Revenue Service (IRS) to issue summons for records relating to US taxpayers with offshore bank accounts by directing five banks to produce records for accounts.
US District Judge Kimba M Wood of the Southern District of New York entered an order on November 7, 2013, authorising the IRS to issue summonses requiring Bank of New York Mellon (Mellon) and Citibank NA (Citibank) to produce information about US taxpayers who may be evading or have evaded federal taxes by holding interests in undisclosed accounts at Zurcher Kantonalbank and its affiliates (collectively, ZKB) in Switzerland.
US District Judge Richard M Berman of the Southern District of New York also entered an order on Tuesday authorising the IRS to issue summonses requiring Mellon, Citibank, JP Morgan Chase Bank NA (JPMorgan), HSBC Bank USA NA (HSBC), and Bank of America NA (Bank of America) to produce similar information in connection with undisclosed accounts at The Bank of NT Butterfield and Son Limited and its affiliates (collectively, Butterfield) in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the United Kingdom.
The release said that US Attorney for the Southern District of New York Preet Bharara, Assistant Attorney General for the Justice Department’s Tax Division Kathryn Keneally, and Acting Commissioner of the Internal Revenue Service (IRS) Danny Werfel made the announcement on Tuesday.
It said that in these actions, the Court granted the IRS permission to serve what are known as ‘John Doe’ summonses on Mellon, Citibank, JPMorgan, HSBC, and Bank of America. The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses direct these five banks to produce records identifying US taxpayers with accounts at ZKB, Butterfield and their affiliates, including other foreign banks that used ZKB and Butterfield’s US correspondent accounts at Mellon, Citibank, JPMorgan, HSBC, and Bank of America to service US clients.
“These cases once again demonstrate the department’s resolve to uncover and identify taxpayers who tried to hide money overseas as a way to avoid federal taxes,” said Assistant Attorney General Keneally. “These John Doe summonses will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their US tax obligations. US taxpayers still holding accounts who have not come clean should come forward and do the right thing before it’s too late.”
Manhattan US Attorney Bharara said, “These actions show that the use of foreign banks for tax evasion remains a high investigative priority of this office and US citizens should understand that loud and clear. By issuing these John Doe summonses, we continue our joint efforts with the IRS to identify and hold accountable those who try to evade their legal responsibility to pay taxes.”
The release quoted IRS Acting Commissioner Werfel as saying, “International issues remain a major focus for the IRS, and we are continuing our efforts to fight tax evaders who use offshore accounts to skirt the law. These John Doe summonses for correspondent account records show our determination to pursue evaders using offshore accounts, even if the person hiding money overseas chooses a bank that has no offices on US soil.”
It said that IRS Offshore Voluntary Disclosure programmes and initiatives enable US taxpayers to resolve their tax liabilities and minimise their chances of criminal prosecution by voluntarily disclosing previously undisclosed foreign accounts and income. To date, US taxpayers have identified 371 previously undisclosed accounts at ZKB and 81 such accounts at Butterfield. In addition, a number of US taxpayers with beneficial ownership and control over funds held in accounts at ZKB and Butterfield have admitted failing to report income earned from their offshore accounts on their federal tax returns.
According to the release, the IRS has reason to believe that other US taxpayers who held or presently hold similar accounts at ZKB, Butterfield, and their affiliates have also done the same in violation of federal tax law. In December 2012, three employees of ZKB were indicted for conspiring with US taxpayers and others to hide at least US$423 million from the IRS in secret Swiss bank accounts.
It reminded that federal tax law requires US taxpayers to pay taxes on all income earned worldwide. US taxpayers must also report foreign financial accounts if the total value of the accounts exceeds US$10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50 percent of the amount in the account at the time of the violation, the release added.
