Several days ago I had the opportunity to attend an offshore finance conference in Miami. Present were several senior managers and lawyers assigned to the IRS’ Offshore Compliance Initiative. These are the IRS folks in charge of FATCA and FBAR enforcement.
After the conference, I also had the opportunity to speak with several of the IRS managers privately. The information they shared is important for anyone who has yet to file delinquent FBARs and report offshore financial accounts.
According to Brian Steirnagle, the IRS’ offshore program manager, the IRS plans on issuing a new round of John Doe subpoenas in coming months to identify U.S. taxpayers with unreported foreign bank accounts. Prior John Doe subpoenas were mostly aimed at finding Swiss accounts but Steirnagle says the Service is broadening their net. “In the next 12 to 24 months, you will see additional John Doe summonses related to parts of the world other than Switzerland, and we are going to go beyond the banks. Intermediaries, service providers and facilitators will be potential targets of John Doe summonses,” Steirnagle said.
Privately, all of the IRS personnel in attendance were very tight lipped about who would receive the subpoenas but one agent claimed that Brazil and Latin America were definitely on their radar.
A John Doe subpoena allows the IRS to obtain information about customers with unreported accounts. Previously, the IRS could only issue a subpoena if it knew the name of the taxpayer suspected of not reporting foreign accounts. The new John Doe subpoena, however, allows the IRS to get information about all accounts with ties to the United States.
In recent years, the IRS has issued 7 John Doe subpoenas seeking information about private banking relationships and 8 John Does to shipping services and correspondents. Even if a bank is beyond the subpoena power of U.S. courts, foreign banks need U.S. banks to serve as correspondents in cross border transactions and frequently use shipping services such as FedEx and UPS to correspond with American clients.
Two years ago, the IRS issued John Doe summonses against Bank of New York (Mellon), Citibank, JPMorgan Chase, HSBC and Bank of America seeking information about Bank of Butterfield (Bermuda). The IRS was fishing for Americans with unreported accounts in the Bahamas, Barbados, Cayman Islands, Switzerland, Guernsey, Hong Kong and the United Kingdom. They also issued subpoenas to Sovereign Management and Legal, a Panamanian company that helps taxpayers construct offshore trusts and foundations.
We have no doubt the IRS is readying another aggressive round of subpoenas.
Taxpayers who have failed to file an FBAR form (Report of Foreign Bank and Financial Accounts) face hefty fines and even prison. (The willful failure to file an FBAR is a felony!)
Although Switzerland garners much of the media attention focused on unreported foreign accounts, the IRS appears to be pushing into Latin America and Brazil. We also know from prior experience that the Service has also been looking at Caribbean, Indian and other European banks.
Time is quickly running out. The next wave of John Doe subpoenas is expected in 6 to 8 months.
If you have failed to file an FBAR for one or more years, don’t delay. There are amnesty and streamlined filing options that can help you avoid the common 50% penalties. Simply mailing in delinquent FBAR forms won’t work, however.
Mahany & Ertl – America’s FBAR Lawyers