Important announcement to U.S. taxpayers that opened offshore bank accounts through a company called Sovereign Management & Legal, Ltd. Based in Panama, the company offers to help Americans open offshore bank accounts with nominee corporations. Knowing that many people who do take these actions are also committing tax evasion, the IRS and Justice Department obtained a John Doe summons from a federal judge. The IRS hopes to find Americans who used Sovereign to open accounts.

Federal Court Approves U.S. Government Issuance Of John Doe Summonses

A Federal Judge recently approved the Internal Revenue Service’s issuance of what is known as a “John Doe” summons to several entities in the U.S who utilized the services of Sovereign Management & Legal Ltd. (“Sovereign”). These entities include FedEx, DHL, UPS, Western Union, the Federal Reserve Bank of New York, Clearing House Payments Company LLC and HSBC USA. According to Sovereign’s website and the government’s Petition filed with the U.S. District Court for the Southern District of New York, Sovereign provides Offshore Banking, Corporation and Trust services. The U.S. government alleges that U.S. taxpayers used those services to conceal ownership of assets held offshore to evade U.S. taxation.

A “John Doe” summons may be issued when the government is unsure of the exact identity of the person(s) for whom they are seeking the information. These summonses seek information that the government cannot procure through the Foreign Account Tax Compliance Act (“FATCA”) and serves as the latest effort in the IRS’s recent push to achieve global tax compliance from its citizens. FATCA, enacted by Congress in March of 2010, requires foreign financial institutions to report certain information about U.S. taxpayer held foreign financial accounts or foreign entities in which U.S. taxpayers hold a substantial ownership interest.

In the context of offshore financial holdings, the government has recently issued John Doe summonses to a number of financial institutions requesting account information for U.S. taxpayers with ownership or signature authority over foreign accounts without knowing the names of the specific taxpayers whose information it is seeking. For a John Doe summons to be approved, the government is required to make a showing in court that (1) the summons relates to a particular person or ascertainable group, (2) there is a reasonable basis for believing that such person or group may have failed to comply with any provision of the internal revenue law, and (3) the information sought is not readily available from other sources.

The Federal District Court found that the government met its burden with respect to these requests. For example regarding the courier companies named in the Summons, the government believes that the John Doe summonses will assist them in identifying U.S. clients of Sovereign through records of shipping services between Sovereign and taxpayers in the U.S.

HSBC USA is among the entities named in the government’s Petition because of its correspondent bank accounts held at the bank by HSBC Hong Kong and HSBC Panama. The correspondent account provides banking services to the foreign bank that does not have a U.S. branch so that the foreign bank may reach U.S. customers. The government alleges that HSBC USA’s records relating to the correspondent accounts will assist the government in determining the identity of Sovereign’s clients who held accounts with HSBC Hong Kong and HSBC Panama through wire transfer information and cancelled checks retained by HSBC USA.

The government’s Petition further requests authority to issue summonses to gather wire and electronic fund transfer information from the New York Federal Reserve, Western Union and Clearing House Payments Company. According to the Petition, the New York Federal Reserve Bank maintains the primary electronic funds transfer system for domestic U.S. fund transfers, Western Union also facilitates transfers of funds, and the Clearing House Payments Company operates the main electronic funds transfer system for processing international U.S. dollar funds transfers made between international banks. All of these sources are believed to contain information relevant to discovering the identities of U.S. taxpayers hiding assets offshore through services allegedly provided by Sovereign.

The John Doe summons has already proved to be a powerful tool to help the IRS gather information, including names and account information of U.S. taxpayers with foreign accounts or other foreign financial interests. The IRS has used the John Doe summonses to target individuals with foreign accounts who are hoping to “wait out” the IRS and thus avoid making a voluntary disclosure as well as those intending to avoid future reporting requirements. Once a taxpayer is on the IRS’s radar, IRS Criminal Investigation will no longer clear them to come into compliance under the protections of a voluntary disclosure program.

Services Offered By Sovereign Management That Could Facilitate Tax Evasion By U.S. Taxpayers.

Curious about the services offered by Sovereign, I visited their website.

One of the services offered by Sovereign is an “anonymous offshore ATM / debit card”. Long associated with tax evasion, offshore debit cards are a popular way for people with hidden assets to repatriate their money into the United States. Transferring money into your U.S. account would leave a paper trial but an anonymous debit card allows one to spend money in the United States and make ATM withdrawals with very little paper trail.

Sovereign advertises that their cards have neither a name imprinted on them nor encoded in their magnetic strips.

Of course, to open a foreign bank account most foreign banks want to see a passport. Sovereign has that covered too. For a fee, Sovereign offers “aged” offshore shelf corporations that already have bank accounts. Why present a passport when you can buy a company “off the shelf” that already has an offshore account?

Still need more anonymity? Sovereign offers “nominee director service”.

Worried that you might lose control of your funds or your offshore shelf company? Sovereign has an answer for that too. Their nominee directors come with undated resignation letters.

Sovereign advertises that for a mere $3,500 you can own a ready made Nevis corporation owned by a Panamanian foundation, complete with bank account. An aged company or one with nominee directors is extra, of course.

While none of these things alone are illegal, the IRS considers them to affirmative acts of tax evasion. Unless you have some valid business purpose, having a nominee entity will at a minimum get you audited and if you get caught with an unreported foreign account, you could land in jail.

Is There A Risk Of Getting Caught?

Absolutely! In the case of Sovereign, because they are located in Panama, their customer lists are beyond the reach of the Justice Department. The courier companies however can be subpoenaed and they carry checks and incorporation papers back and forth to Sovereign. Likewise the major credit card companies and ATM networks can be subpoenaed for the financial transactions flowing through their institutions. If you have not reported your foreign income and you have not disclosed your foreign bank accounts, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Program (OVDP) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS. Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in San Francisco, Los Angeles, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

Under the Foreign Account Tax Compliance Act (“FATCA”), foreign banks, insurers and investment funds must send the Internal Revenue Service information about Americans’ and U.S. permanent residents’ offshore accounts worth more than $50,000. Institutions that fail to comply could effectively be frozen out of U.S. markets. As of this blog posting, the U.S. has entered into Intergovernmental Agreements (“IGA’s”) with 48 countries for the implementation of FATCA.

The 48 countries with IGA’s already in place are:

Countries that have reached IGA’s in substance and have consented to being included on this list are:

Click here for progress and developments IRS has made in gathering information from foreign banks and foreign governments.

Federal tax law requires U.S. taxpayers to pay 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. Willful 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 and may even result in the IRS filing criminal charges.

Time is running out. The IRS is giving taxpayers one last chance to come forward and voluntarily disclose foreign accounts and unreported foreign income before the IRS starts investigating non-compliant taxpayers.

Don’t let another deadline slip by. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed or in 2012 OVDI, you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

Credit Suisse Agrees to Pay $2.6 Billion to Settle Probe by U.S. Justice Department

Credit Suisse Group AG became the first financial institution in more than a decade to plead guilty to a crime on May 19, 2014 when the Swiss bank admitted it conspired to aid tax evasion and agreed to pay $2.6 billion to settle a long-running probe by the U.S. Justice Department.

Attorney General Eric Holder, in announcing the charges, said the bank engaged in an “extensive and wide-ranging” scheme to help U.S. taxpayers hide assets.

The criminal charge filed Monday in federal court outlined a decades-long, concerted attempt by Credit Suisse to “knowingly and willfully” help thousands of U.S. clients open accounts and conceal their “assets and income from the IRS.” Mr. Holder said the bank destroyed account records sent to the U.S. for client review, concealed transactions and “failed to take even the most basic steps to ensure compliance with tax laws.”

Even after a U.S. crackdown on Swiss accounts in 2008 led Credit Suisse and rival UBS AG to tighten restrictions on the kinds of services they would provide to American customers, they continued to take steps that hindered investigators, the filing said. Credit Suisse didn’t conduct a thorough inventory of the accounts its managers oversaw, and some managers helped clients move their assets to other offshore banks so they would remain hidden to the U.S., according to the filing.

When it became clear in 2010 that the Justice Department was investigating the bank’s conduct, Mr. Holder said Credit Suisse “failed to retain key documents, allowed evidence to be lost or destroyed, and conducted an inadequate internal inquiry.”

“This conspiracy spanned decades,” Mr. Holder said. “Credit Suisse not only knew about this illegal, cross-border banking activity; they willfully aided and abetted it. Hundreds of Credit Suisse employees, including at the manager level, conspired to help tax cheats dodge U.S. taxes.”

Prosecutors have also charged eight former Credit Suisse employees with helping aid tax evasion.

The financial terms of the settlement include a $100 million payment to the Federal Reserve, more than $715 million to the New York Department of Financial Services, and about $1.8 billion to the Justice Department. Credit Suisse already has set aside more than $800 million, or about a third of the total settlement, to deal with the issue.

In addition Credit Suisse is handing over information that Deputy Attorney General James Cole said would lead to the IRS identifying specific non-compliant U.S. account holders.

The settlement marks the Justice Department’s biggest victory in its crackdown on tax evasion since UBS agreed to pay $780 million as part of a deferred-prosecution agreement in 2009. As part of that deal, UBS acknowledged aiding U.S. tax evasion but didn’t plead guilty.

Still, Credit Suisse’s relationships with its clients and partners may take a hit. Many pension and mutual funds have guidelines that prevent them from dealing with institutions that have pleaded guilty to criminal charges.

With big wins by the U.S. against UBS and Credit Suisse, the momentum to break Swiss Bank Secrecy Laws that historically fostered tax evasion grows stronger. Roughly a dozen Swiss banks are still subjects of criminal investigations by U.S. authorities and all of Switzerland’s 106 banks are taking part in a self-reporting program run by the U.S. Justice Department.

In response to a government crackdown on Americans hiding money overseas, more than 43,000 taxpayers joined a voluntary Internal Revenue Service disclosure program to acknowledge previously unknown accounts. The IRS estimates that Credit Suisse had more than 22,000 U.S. customers with Swiss accounts Although it is not clear how many of those were hidden from the IRS, a Congressional panel has concluded that Credit Suisse actively recruited Americans to open secret Swiss accounts.

Don’t think that only Swiss banks are being targeted. Federal prosecutors also are negotiating a multibillion-dollar settlement with French bank BNP Paribas to end an investigation into alleged evasion of sanctions.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California qualify you for OVDI.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

Under the Foreign Account Tax Compliance Act (“FATCA”), foreign banks, insurers and investment funds must send the Internal Revenue Service information about Americans’ and U.S. permanent residents’ offshore accounts worth more than $50,000. Institutions that fail to comply could effectively be frozen out of U.S. markets. As of this blog posting, the U.S. has entered into intergovernmental Agreements (“IGA’s”) with 32 countries for the implementation of FATCA.

The 32 countries with IGA’s already in place are:

Countries which are close to having an IGA in place are:

Click here for progress and developments IRS has made in gathering information from foreign banks and foreign governments.

Federal tax law requires U.S. taxpayers to pay 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. Willful 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 and may even result in the IRS filing criminal charges.

The IRS is giving taxpayers one last chance to come forward and voluntarily disclose foreign accounts and unreported foreign income before the IRS starts investigating non-compliant taxpayers.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California qualify you for OVDI.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.