Internal Revenue Service Aggressively Pursuing U.S. Banks For Ties To Offshore Accounts

The Internal Revenue Service is issuing “John Doe” Summonses on major U.S. based banks.  The IRS uses John Doe summonses to obtain information concerning possible tax fraud by persons whose identities are unknown. Two federal judges from the Southern District of New York have authorized the summonses on five banks (Bank of New York Mellon (“Mellon”), Citibank, JP Morgan Chase Bank (“Chase”), HSBC Bank USA (“HSBC”), and Bank of America (“BOA”) requiring them to produce records relating to U.S. taxpayers with offshore accounts

Judge Kimba Wood authorized the summonses on November 7, requiring Mellon and Citibank to produce information about U.S. taxpayers by holding interests in undisclosed accounts at Zurcher Kantonalbank and its affiliates (“ZKB”) in Switzerland.  Then on November 12, Judge Richard Berman authorized the summonses requiring Mellon, Citibank, Chase, HSBC and BOA to produce similar information in connection with undisclosed accounts at The Bank of N.T. Butterfield & Son Limited and its affiliates (“Butterfield”) in various offshore locations including the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the United Kingdom. The summonses seek records identifying U.S. taxpayers with accounts at ZKB and Butterfield.

According to the Department of Justice (“DOJ”), the IRS Offshore Voluntary Disclosure programs have identified 371 previously undisclosed accounts at ZKB and 81 such accounts at Butterfield.  As such, the IRS has reason to believe that other U.S. taxpayers may hold undisclosed accounts at ZKB and Butterfield in violation of federal tax law.

The Offshore Voluntary Disclosure programs have thus been successful in not only getting taxpayers to fess up (without risk of criminal prosecution) but those who have come forward have helped the Internal Revenue Service to understand the processes used and thereby find the taxpayers who have not come forward and pursue them more aggressively.