IRS Attack on Wells Fargo Threatens Still-Hidden Offshore Accounts

Monday, 06 May 2013 08:01 AM

By Denis Kleinfeld

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It is likely that thousands, if not hundreds of thousands, of people subject to income tax in the United States will soon find their name and account numbers in the hands of the IRS.

The latest tax enforcement effort by the IRS will expose otherwise still secret accounts held in the Caribbean.

This seems to have shaken many who thought they had out-smarted the IRS. But that is a tough thing to do even on a very good day.

Using a legal technique that was successful in the past for discovering the misuse of offshore credit cards, the IRS is creatively applying it in another way.

Previously, the IRS had gotten the bank records of a Cayman Islands bank via a turncoat banker, and then filed a “John Doe” subpoena to have the bank turn over related account names and numbers.

The broad application of the John Doe subpoena resulted in non-U.S. persons who have no connection to the U.S. tax system having their identities being possibly provided —officially — to the IRS.

It took legal proceedings in a U.S. court to get the IRS to dismiss from the subpoena the names of the foreigners who the IRS claimed they didn’t know even though they had the bank records already.

Needless to say, the U.S. tax evaders who were using credit cards of the Cayman bank didn’t get the same dismissal treatment.

As part of the current offshore tax haven account crackdown, the IRS filed a John Doe subpoena against Wells Fargo.

The IRS has also gone after UBS, Credit Suisse and Wegelin Bank. All these are foreign banks that held accounts for U.S. people.

Wells Fargo, however, is a U.S. bank.

The obvious question then is why did the IRS tag Wells Fargo.

The reason is that FirstCaribbean, which provides banking services in 18 countries located in the Caribbean, has a correspondent account with Wells Fargo. Specifically, FirstCaribbean likely holds accounts of people who are evading U.S. income and other taxes in secret tax-haven Caribbean countries.

Given the nature of the new international information sharing agreements, the disclosure of account names and information may not be limited to just U.S. tax evaders, as the targets of the IRS may not only be the accountholders.

Clearly, the IRS, as it has in the past, will focus on the banks, bankers and account facilitators, such as insurance companies, lawyers, accountants and investment advisors.

The IRS views them all as conspirators in helping people who are evading U.S. tax.

These are non-U.S. people and financial institution professionals who may very well think they are not subject to the long arm of the IRS. They are wrong.

The IRS has already had success prosecuting Swiss bankers, lawyers and other financial professionals as a result of the prosecution of UBS, Credit Suisse, Wegelin and other foreign banks.

Now the IRS wants to up the pressure by attacking not only the bank holding the offending accounts, but also the bank that holds the money for the bank holding the offending accounts.

It should be expected that more U.S. banks holding correspondent accounts for non-U.S. banks will be targeted as well in the not too distant future.

For those accountholders who are now exposed to the possibility of being prosecuted, the IRS still offers the Offshore Voluntary Disclosure Program. It may be a bit costly dollarwise, but certainly less costly than spending time at the U.S. government’s expense at the Extended Stay Gray Bar Hotel.

For all those who have been active in helping people set up the offshore accounts and holding structures, it is time to also get U.S. legal advice.

It seems for U.S. tax enforcement that offshore has become onshore as far as the IRS is concerned.

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