International Taxes –
A U.S. District Court
has authorized IRS to serve “John Doe” summonses to eight entities in the
shipping or financial services industry in order to identify the U.S. tax
cheats that used an off-shore service provider (Sovereign Management &
Legal Ltd., or simply, Sovereign) to establish, maintain, and/or conceal
foreign accounts, assets, and entities. In particular, Federal Express
Corporation, FedEx Ground Package System, DHL Express (DHL), and United Parcel
Service Inc. (UPS) would be asked to disclose the correspondence records of
Sovereign and its U.S. clients. Similarly, Western Union Financial Services
Inc., the Federal Reserve Bank of New York (FRBNY), Clearing House Payments Company
LLC (Clearing House), and HSBC Bank USA National Association (HSBC USA) would
be asked to furnish banking information and/or fund transfer records of
Sovereign and its U.S. clients.
Background on the IRS
investigation. As a result of a Drug Enforcement Administration (DEA)
investigation of online narcotics trafficking, IRS learned that Sovereign was
involved in assisting U.S. clients evade their taxes.
According to the DOJ
press release, Sovereign offers a variety of services to its clients, including,
for example, the formation and administration of anonymous corporations and
foundations in Panama and offshore entities, the maintenance and operation of
offshore structures, mail forwarding, the availability of virtual offices,
re-invoicing, and the provision of professional managers, who appoint
themselves directors of the client's entity while the client retains ultimate
control over the assets.
During the IRS
investigation, one taxpayer made a voluntary disclosure of tax non-compliance
to avoid prosecution and disclosed that Sovereign helped the taxpayer form an
anonymous corporation in Panama to allow the taxpayer to control certain assets
without appearing to own them. As part of the investigation, IRS further
determined that Sovereign:
(1) Used Federal Express, UPS and DHL to
correspond with its U.S. clients;
(2) Used Western Union to transmit funds to and
from clients in the U.S.;
(3) Used wire services operated by the FRBNY and
Clearing House for financial transactions between Sovereign and its clients in
the U.S.; and
(4) Maintained correspondent bank accounts in
Panama and Hong Kong through HSBC USA for financial transactions between
Sovereign and its clients in the U.S.
The John Doe
summonses. As background, IRS uses “John Doe” summonses to target individuals
suspected of tax fraud, but whose identifies are not readily available and thus
not specifically identified.
The John Doe summonses
direct the eight entities to produce records that will assist the IRS in
identifying U.S. taxpayers who, from 2005 through 2013, used Sovereign's
services to establish, maintain, operate or control:
(1) Any foreign financial account or other
assets;
(2) Any foreign corporation, company, trust,
foundation or other legal entity; or
(3) Any foreign or domestic financial account in
the name of such foreign entity.
Through this process,
IRS expects to identify Sovereign's U.S. clients who may be avoiding or evading
taxes.
U.S. continues to
target undeclared foreign assets. In a DOJ press release, Deputy Assistant
Attorney General Hubbert stated that “[t]his summons action is but the latest
step in the Department of Justice's efforts to identify and hold fully
accountable U.S. taxpayers who have sidestepped their tax obligations by hiding
money overseas.” “The world is getting smaller for tax cheats, and we will work
with our partners at the IRS to vigorously enforce the nation's tax laws
against those who seek to avoid paying their fair share.”
“This action
demonstrates our Office's commitment to pursuing tax evaders who use offshore
service providers to avoid their U.S. tax obligations,” said U.S. Attorney
Bharara. “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 remains
committed to continuing our priority efforts to stop offshore tax evasion
wherever it is found,” said Commissioner Koskinen. “We have made tremendous
progress in this area, working cooperatively with other agencies. The John Doe
summons remains an important tool in our efforts to find international tax
evaders and those who help them.”
“The DEA has a
longstanding commitment to sharing information with our federal, state, and
local partners,” said Special Agent in Charge Anthony D. Williams. “Issuance of
these summonses exemplifies how outstanding investigative results can be
derived from a culture of interagency cooperation.”
The case is being
handled by the U.S. Attorney's Office for the Southern District of New York Tax
and Bankruptcy Unit.
We're
here to help! For no obligation free consultation contact us today!
Amare
Berhie, Senior Tax Accountant
(651) 621-5777
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