Tax Law Center Blog

Last week the U.S. Justice Department asked a federal district court in San Francisco to force HSBC USA to disclose the names of their U.S. customers suspected of having secret bank accounts in India.  The legal action comes after the indictment of a New Jersey Indian American businessman in hiding his bank accounts in India from the Internal Revenue Service. Our law firm predicted possible disclosure of HSBC account holders’ names almost three months ago.

The government filed a petition with the court to allow the IRS to serve what is known as a “John Doe” summons on the bank.   John Doe summons are used by the IRS to obtain information about possible tax fraud by those whose identities are unknown.   If approved, the John Doe summons would direct HSBC USA to produce records identifying U.S. taxpayers with accounts at HSBC India.  In court documents, the U.S. Justice Department alleged that HSBC bankers solicited prospective clients, promising that, as a foreign bank, HSBC’s India wouldn’t disclose their accounts to the Internal Revenue Service.  According to the government, thousands of U.S. taxpayers have opened bank accounts with HSBC India since 2002.

Federal law requires U.S. taxpayers to pay federal income taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. A willful failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation.

The new summons by the IRS and Department of Justice opens up a new chapter in the U.S. crackdown on tax evasion.  Previous cases focused on Americans with Swiss bank accounts, the most notable of which was the John Doe summons case against UBS.

In February, the IRS announced a new amnesty initiative called the Offshore Voluntary Disclosure Initiative (OVDI) for the taxpayers with hidden offshore accounts.  The program offers taxpayers who voluntarily come forward protection from criminal prosecution for tax evasion.  The program will require individuals to pay a penalty of 25% of the amount in their foreign bank accounts in the year with the highest aggregate account balance over eight years from 2003 through 2010.   The taxpayers will also be required to amend their tax returns, and pay back taxes and interest, as well as accuracy-related penalties.  Under the regular FBAR rules, a taxpayer could pay up to 50% of the highest amount in each account for each year over six years.
HSBC will likely cooperate with the IRS and release all Indian American account holders’ names for which the IRS is seeking information, much like UBS did with the IRS back in 2008.  It is recommended that such individual immediately seek legal assistance to minimize their risk of complications.

For additional information, contact Parag Patel of Patel Law Offices at 732-623-9800 or visit us at www.PatelLawOffices.com.  Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems.