Federal Court Authorizes IRS to Serve “John Doe” Summons Regarding CIBC FirstCaribbean International Bank

The U.S. government’s unrelenting crackdown on offshore tax evasion shows no sign of slowing down (for prior coverage, see here).  Late yesterday a federal judge in San Francisco authorized the IRS to serve what is known as a “John Doe” summons seeking the identities of U.S. taxpayers who maintain bank accounts at Canadian Imperial Bank of Commerce FirstCarribbean Bank (FCIB) (see DOJ press release here).  This latest development shows that the U.S. government is expanding its global probe into the Carribbean region.

According to the Internal Revenue Manual, “[a] John Doe summons is any summons where the name of the taxpayer under investigation is unknown and therefore not specifically identified.”  The IRS has frequently employed “John Doe” summons to obtain the identities of U.S. taxpayers who maintain offshore bank accounts.  In 2009, the IRS served a John Doe summons seeking the identities of U.S. taxpayers maintaining bank accounts at UBS in Switzerland.  In that proceeding, the IRS alleged that 52,000 U.S. taxpayers had accounts at UBS.   In 2011, the IRS received court approval to serve a John Doe summons seeking the identities of U.S. taxpayers maintaining undisclosed bank accounts at HSBC in India.  Most recently, in January 2013, a federal judge authorized the IRS to serve a John Doe summons seeking the names of account holders at Swiss bank Wegelin & Co.  Wegelin itself was prosecuted and pleaded guilty to conspiring with U.S. taxpayers and others to maintain secret accounts at the Swiss bank.

According to the DOJ press release, FCIB is based in Barbados and has branches in 18 Caribbean countries. Although FCIB does not have U.S. branches, it maintains a correspondent account in the United States at Wells Fargo Bank N.A.  The John Doe summons directed to FCIB seeks records of FCIB’s U.S. correspondent account at Wells Fargo N.A., which will allow the IRS to identify U.S. taxpayers who maintain bank accounts at FCIB and other financial institutions that used FCIB’s Wells Fargo correspondent account. 
 
It appears that the IRS learned that U.S. taxpayers were hiding funds at FCIB based upon information submitted by taxpayers participating in the IRS voluntary disclosure programs.  The IRS has stated that it is aggresively “data mining” the information provided by the more than 38,000 individuals who have made voluntary disclosures regarding offshore bank accounts since 2009.  It appears that more than 120 account holders at FCIB have made voluntary disclosures regarding their accounts, and the IRS obviously believes that there are more taxpayers with accounts at FCIB who have not yet “come in from the cold.”
 
In its press release announcing approval of the John Doe summons, the Justice Department reminds taxpayers that the IRS continues to offer an Offshore Voluntary Disclosure Program (OVDP) for taxpayers with unreported foreign bank accounts and related unreported income.  Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division, stated that “[t]his John Doe summons is a visible indication of how we are using the many tools available to us to pursue this activity wherever it is occurring. Those who are still hiding should get right with their country and their fellow taxpayers before it is too late.”

The fact that the IRS has served a John Doe summons on FCIB does not necessarily mean that taxpayers maintaining accounts at that bank are no longer eligible to take advantage of the IRS OVDP.  This precise issue is addressed in one of the Frequently Asked Questions and Answers that the IRS has posted on its website regarding the OVDP.  FAQ 21 provides as follows:

Q.  If the IRS has served a John Doe summons or made a treaty request seeking information that may identify a taxpayer as holding an undisclosed foreign account or undisclosed foreign entity, does that make the taxpayer ineligible to make a voluntary disclosure under this program?

A.  No. The mere fact that the Service served a John Doe summons, made a treaty request or has taken similar action does not make every member of the Joe Doe class or group identified in the treaty request or other action ineligible to participate. However, once the Service or the Department of Justice obtains information under a John Doe summons, treaty request or other similar action that provides evidence of a specific taxpayer’s noncompliance with the tax laws or Title 31 reporting requirements, that particular taxpayer will become ineligible for OVDP and Criminal Investigation’s Voluntary Disclosure Practice. For this reason, a taxpayer concerned that a party subject to a John Doe summons, treaty request or similar action will provide information about him to the Service should apply to make a voluntary disclosure as soon as possible.

 As this FAQ makes clear, however, once the IRS or DOJ obtain information in response to a John Doe summons, it is too late to make a voluntary disclosure.  In light of the court’s approval of the John Doe summons, individuals who maintain (or have maintained in the past) bank accounts at FCIB would be well advised to promptly consider enrolling in the OVDP before it is too late.

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