The Justice Department announced on April 30 that a federal court had authorized the Internal Revenue Service to serve a “John Doe” summons on U.S. taxpayers who may have foreign bank accounts at Canadian Imperial Bank of Commerce’s First Caribbean International Bank (FCIB). The IRS uses such summons to obtain information about possible violations of internal revenue laws. The summons is to be served on Wells Fargo, the San Francisco-based bank that maintains correspondent accounts for FICB, a Barbados-based bank. FCIB used the Wells account to wire funds to other accounts in the U.S. and overseas. The IRS believes that the Wells Fargo bank records will contain information needed to identify U.S taxpayers with undisclosed accounts from 2004 to 2012.
Vic Abajian, a former IRS Tax Attorney in Los Angeles, stated that those with accounts at FCIB still have limited time to make a voluntary disclosure to the IRS and avoid criminal prosecution. The IRS has publicly confirmed that a taxpayer is not disqualified from a making a disclosure just because the IRS has served a John Doe summons. However, once the IRS or Department of Justice obtains information under a John Doe summons that provides evidence of a specific taxpayer’s noncompliance, that particular taxpayer will become ineligible to a make a disclosure. Thus, it is important that account holders act quickly.
Daniel Reeves, a retired IRS official who led the agency’s offshore investigation into Swiss Bank UBS AG, said, “The IRS can do this time and time again without the need to build a criminal case against an institution.” FCIB is the latest of several overseas banks in efforts to crack down on hidden offshore bank accounts. In a similar case in January 2013, a federal court allowed the IRS to serve a “John Doe” summons on Switzerland UBS AG, seeking records of Swiss bank Wegelin & Co.’s U.S. correspondent account at UBS. Wegelin agreed to pay nearly $58 million in penalties and said it would shut its doors after admitting to helping wealthy Americans in tax evasion.
It is believed that information of FCIB’s alleged activities came from the IRS offshore voluntary disclosure program, which allows taxpayers to reveal offshore accounts with less penalties and no criminal prosecution. The Caribbean bank was used by at least 129 Americans who used the voluntary disclosure program. The IRS believes there are more Americans who have not voluntarily disclosed but who have used the bank. The taxpayers making the voluntary disclosures have revealed hundreds of banks around the world as well.
The IRS has made continued efforts to pursue cases of hidden offshore bank accounts and will continue to expose those who have hidden money overseas. “This 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.” Kathryn Keneally, assistant attorney general for the department’s tax division, said in a statement. “The Department of Justice and the IRS are committed to global enforcement to stop the use of foreign bank accounts to evade U.S. taxes.”
Mr. Abajian, a tax lawyer in Pasadena and Los Angeles, has handled dozens of offshore disclosures from those involving very simple interest bearing accounts to those that involve complex multi-million dollar businesses that include Sub Part F, I.R.C. § 956, transfer pricing studies and various other issues. He is also part of a team of tax attorneys appealing a decision out of the Southern District of New York which held that the 5th amendment does not apply to a request by the government for information (criminal grand jury subpoena) about offshore accounts under the required records exception.