The United States District Court for the Southern District of New York entered an order on November 7th authorizing the IRS to issue summonses requiring Citibank and Bank of New York Mellon to produce records relating to U.S. taxpayers who have evaded or may be evading federal taxes through accounts in Switzerland at Zurcher Kantonalbank and its affiliates. Furthermore, on November 12th, that same District Court entered an order allowing the IRS to issues summonses requiring information on undisclosed accounts at The Bank of N.T. Butterfield & Son Limited and its affiliates to be produced by Bank of America, HSBC, Mellon, Citibank, and JPMorgan Chase. The Bank of N.T. Butterfield & Son has a presence in Switzerland, the Bahamas, Barbados, Cayman Islands, Guernsey, Malta, Hong Kong, and the United Kingdom.
This means that the IRS is authorized to serve “John Doe” summonses on Bank of America, JPMorgan Chase, Citibank, Mellon, and HSBC. In this context, it is not necessary for the government to target an ascertainable person. If the IRS cannot identify a particular taxpayer, it has the option of using a John Doe summons. For a John Doe summons, the IRS need only establish that the summons relates to an identifiable group or class, there is a reasonable basis to believe such person(s) have unreported income, and the information sought is not readily available through other sources. Therefore, for tax fraud by unknown individuals, the IRS uses John Doe summons to acquire information about that tax fraud.
Because of the John Doe summonses that were approved over the last week, Bank of America, JPMorgan Chase, Citibank, Mellon, and HSBC will have to produce information identifying U.S. taxpayers with accounts at Butterfield, Zurcher Kantonalbank, and their affiliates. This includes any other foreign banks that used Zurcher Kantonalbank or Butterfield’s U.S. correspondent accounts at Bank of America, JPMorgan Chase, Citibank, Mellon, and HSBC to service U.S. clients.
Assistant Attorney General for the Justice Department’s Tax Division, Kathryn Keneally, was quoted as saying: “These John Doe summonses will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their U.S. tax obligations. U.S. taxpayers still holding accounts who have not come clean should come forward and do the right thing before it’s too late.”
By voluntarily disclosing previously undisclosed foreign income and accounts, U.S. taxpayers can resolve their tax liabilities and minimize their chances of criminal prosecution through the IRS Offshore Voluntary Disclosure Initiative (OVDI) Program. As of today, U.S. taxpayers have identified 371 previously undisclosed accounts at Zurcher Kantonalbank and 81 previously undisclosed accounts at Butterfield through the offshore voluntary disclosure process.
If you have foreign bank accounts that have not been disclosed to the IRS, we can help! The Tax Law Offices of David W. Klasing has tons of experience with the OVDI Program.