US Court allows IRS to issue summonses to eight entities for records of tax evaders
The Court authorised IRS to issue John Doe summonses on FedEx Express, FedEx Ground, DHL, UPS, Western Union, the FRBNY, Clearing House and HSBC USA for records relating to US clients who used a shell company to conceal offshore accounts
US District Judge Vernon S Broderick has authorised the Internal Revenue Service (IRS) to issue summonses to courier companies among others requiring them to produce information about US taxpayers who allegedly evaded federal taxes by using the services of Sovereign Management & Legal Ltd (Sovereign).
The court authorised the IRS to serve what are known as “John Doe” summonses on Federal Express Corp (FedEx Express), FedEx Ground Package System Inc (FedEx Ground), DHL Express (DHL), United Parcel Service Inc (UPS), Western Union Financial Services Inc (Western Union), Federal Reserve Bank of New York (the FRBNY), Clearing House Payments Company LLC, and HSBC Bank USA National Association (HSBC USA).
Preet Bharara, the US Attorney for the Southern District of New York, in a statement said, “This action demonstrates our Office’s commitment to pursuing tax evaders who use offshore service providers to avoid their US tax obligations. By issuing these John Doe summonses, we continue our joint efforts with the IRS to identify and hold accountable those who conceal their foreign assets in order to dodge their legal responsibility to pay taxes.”
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 eight entities to produce records that will assist the IRS in identifying US taxpayers who, from 2005 to 2013, used Sovereign’s services to establish, maintain, operate, or control any foreign financial account or other assets; any foreign corporation, company, trust, foundation or other legal entity; or any foreign or domestic financial account in the name of such foreign entity.
Sovereign is a multi-jurisdictional offshore services provider that offers clients, among other things, the formation and administration of anonymous corporations and foundations in Panama as well as offshore entities.
As a result of a Drug Enforcement Administration (DEA)’s investigation of online narcotics trafficking known as Operation Adam Bomb”, the IRS learned that Sovereign was involved in assisting US clients with tax evasion. During the IRS’ investigation of Sovereign’s conduct, one taxpayer, making a voluntary disclosure of tax non-compliance to avoid prosecution, reported that Sovereign helped the taxpayer form an anonymous corporation in Panama that the taxpayer used to control assets without appearing to own them.
The IRS investigation also determined that Sovereign uses Federal Express, UPS, and DHL to correspond with US clients, and Western Union to transmit funds to and from clients in the US. In addition, the IRS learned that the wire services operated by the FRBNY and Clearing House, and the US correspondent bank accounts that HSBC USA holds for Sovereign’s banks in Panama and Hong Kong, are likely to have records of financial transactions between Sovereign and its clients in the US. By obtaining information from these entities through John Doe summonses, the IRS expects to be able to identify Sovereign’s US clients who may be avoiding or evading taxes.
Federal 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 $10,000 at any time during the calendar year. Wilful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation.