Tax Law Center Blog

Last week a federal judge approved the IRS issuing “John Doe” summonses requiring FedEx, DHL, UPS, and numerous other intermediaries to produce information about U.S. taxpayers who used Sovereign Management & Legal Ltd. for offshore accounts and assets. They include Western Union Financial Services Inc., the Federal Reserve Bank of New York, Clearing House Payments Company LLC, and HSBC USA.

The IRS uses John Doe summonses to obtain information when it searches for tax fraud by individuals whose identities are unknown. This is a expansive order, allowing the IRS to get records from all of these companies. The target is any U.S. taxpayers who, from 2005 through 2013, used Sovereign’s services to control foreign accounts or entities.

The IRS uses John Doe summonses when it doesn’t know the identities of the suspected culprits.  Information collected will include U.S. shipment addressees, senders, recipients of payments, and other US persons potentially involved in offshore banking and tax evasion.

The IRS recently spent about $1 billion in its recent data-mining modernization. As a result, the agency’s is rolling out an effort to deploy sophisticated data-matching and pattern-recognition technology, and match up taxpayer returns with third-party information, according to U.S. Treasury Inspector General for Tax Administration J. Russell George.

According to a Sept. 21, 2011, report by the Treasury Inspector General for Tax Administration (TIGTA), IRS’s data-mining software is called the E-Trak Offshore Voluntary Disclosure system. Since 2009, more than 33,000 taxpayers have contributed detailed information to E-Trak by participating in IRS’s Offshore Voluntary Disclosure Program (OVDP).  The IRS’s use of E-Trak in the last few years has greatly improved its ability to find taxpayers, bankers, and other professionals who are involved in the world of offshore bank accounts.

Given the IRS’ latest data mining efforts, our law firm expects unabated aggressive enforcement of the US tax laws, including increased criminal prosecutions and civil audit examinations. We have been advising our clients to expect the unexpected (and the worst) in their tax treatment and disclosure of offshore assets.  The OVDP, SDOP and SFOP compliance programs should be considered with experienced legal counsel.

Patel Law Offices has consulted with hundreds of clients regarding their offshore asset compliance issues. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.