by Brian Mahany
Most folks have never heard of a “John Doe” summons. According to the Internal Revenue Manual (the IRS’ own internal procedures manual), a John Doe summons is “is any summons where the name of the taxpayer under investigation is unknown and therefore not specifically identified.”
Until the UBS investigation in 2008, very few people heard of a John Doe summons. That year IRS officials served one on UBS demanding the identities of all U.S. account holders. Since then, the IRS has used the tool in other offshore bank account investigations.
The law allowing the IRS to issue a John Doe summons requires court approval. The IRS adds further restrictions and only allows senior IRS personnel to request them. That means every special agent, revenue agent and revenue officer can’t simply run around the world engaging in unauthorized fishing expeditions.
The law authorizing John Doe summons requires the court to find that there is a “reasonable basis” to believe that the target group has failed or “may fail” to comply with tax laws. The court must also find that the information is not “readily available” from other sources.
Recently the IRS used a John Doe summons to obtain information about Californians who may have gifted real estate to family members. That summons was served on the State of California and was approved by the court.
We expect many more John Doe summonses in future years, particularly in cases of hidden or unreported foreign bank and brokerage accounts. The rate of non compliance with foreign reporting requirements remains high, primarily because many U.S. taxpayers simply don’t know they must report ownership interest or signatory authority over foreign accounts.
Many of the clients we represent are dual nationals or recent immigrants to the U.S. We also have seen unwary Americans who have retired oversees and suddenly find themselves in hot water with the IRS. Offshore reporting requirements can be quite complex and changed this year with the addition of the new FATCA foreign financial asset reporting law (Foreign Account Tax Compliance Act).
There is currently an amnesty program (the 2012 Offshore Voluntary Disclosure Program or OVDP) that allows taxpayers with unreported foreign accounts to come forward, avoid criminal prosecution and audit and receive a break on penalties. Voluntary disclosures and opt out procedures may help some taxpayers save even more on penalties although an audit is usually involved.
If you have an unreported foreign bank account, CD, stock account or other financial investment contact us right away. The amnesty program is only available if you contact the IRS first. If the Internal Revenue Service finds you first – through a John Doe summons or otherwise – all bets are off.
For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at All inquiries are strictly confidential.
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