US Government Issues Summons to Delivery Services and Other Businesses to Uncover Identities of Taxpayers Possibly Hiding Funds Offshore

The search for unreported income by the U.S. government for taxpayers that have attempted to stash unreported income offshore has now grown to involve issuing summonses to various companies to obtain information that points to such activities.

In December of 2014 the Department of Justice issue a press release trumpeting their success in obtaining permission to issue summonses, including “John Doe” summonses, to a number of delivery services and other organizations to obtain names of individuals involved with using the services of an enterprise that the IRS and DOJ believe is assisting individuals in ways that enable them to hide income offshore.

The United States District Court in Manhattan authorized the IRS to issue summonses to the following enterprises for information about taxpayers who may have connections to Sovereign Management & Legal, Ltd.:

·      FedEx Express

·      FedEx Ground

·      DHL Express

·      UPS

·      Western Union

·      Federal Reserve Bank of New York

·      Clearing House Payments Company LLC

·      HSBC Bank USA, National Association

The press release notes that:

In this action, the Court granted the IRS permission to serve what are known as “John Doe” summonses on FedEx Express, FedEx Ground, DHL, UPS, Western Union, the FRBNY, Clearing House, and HSBC USA. The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses direct these eight entities to produce records that will assist the IRS in identifying U.S. taxpayers who, from the years 2005 through 2013, used Sovereign’s services to establish, maintain, operate, or control any foreign financial account or other assets; any foreign corporation, company, trust, foundation or other legal entity; or any foreign or domestic financial account in the name of such foreign entity.

From the companies involved it’s clear the IRS is looking for various methods individuals might have used to communicate with and/or move funds to the enterprise in question.

The history of how this organization came to be on the IRS’s radar is described in the press release as follows:

According to the allegations set forth in the documents filed in support of the petition, and other information in the public record:

Sovereign is a multijurisdictional offshore services provider that offers clients, among other things, the formation and administration of anonymous corporations and foundations in Panama as well as offshore entities. Related services provided by Sovereign include the maintenance and operation of offshore structures, mail forwarding, the availability of virtual offices, reinvoicing, and the provision of professional managers who appoint themselves directors of the client’s entity while the client maintains ultimate control over the assets.

As a result of a DEA investigation of online narcotics trafficking known as OPERATION ADAM BOMB, the IRS learned that Sovereign was involved in assisting U.S. clients with tax evasion. During the IRS’s investigation of Sovereign’s conduct, one taxpayer, making a voluntary disclosure of tax noncompliance to avoid prosecution, reported that Sovereign helped the taxpayer form an anonymous corporation in Panama that the taxpayer used to control assets without appearing to own them.

The IRS investigation also determined that Sovereign uses Federal Express, UPS, and DHL to correspond with U.S. clients, and Western Union to transmit funds to and from clients in the U.S. In addition, the IRS learned that the wire services operated by the FRBNY and Clearing House, and the U.S. correspondent bank accounts that HSBC USA holds for Sovereign’s banks in Panama and Hong Kong, are likely to have records of financial transactions between Sovereign and its clients in the U.S. By obtaining information from these entities through John Doe summonses, the IRS expects to be able to identify Sovereign’s U.S. clients who may be avoiding or evading taxes.

Clearly the IRS is casting a wider net in their search for information related to individuals attempting to evade tax via having “secret” offshore accounts, looking to find indirect evidence (such as deliveries to/from the taxpayer) of the existence of such accounts.

A copy of the draft order, signed by the judge, is available on the Justice Department’s website.