On April 7, 2011, the U.S. District Court for the Northern District of California issued an order authorizing the Internal Revenue Service ("IRS") to serve a "John Doe" summons requesting information from one of the world's largest banks, HSBC, regarding U.S. residents who may be using accounts at HSBC in India to evade federal income taxes. If HSBC produces these records, which is likely, it may be too late for U.S. taxpayers with undisclosed HSBC accounts to take advantage of the IRS Voluntary Disclosure Program for offshore accounts.
The Petition to Serve the Summons on HSBC
On April 7, 2011, the U.S. Department of Justice filed a petition in support of its request for authority to serve the summons. According to the petition, a federal grand jury in Newark, N.J., indicted an HSBC account holder, charging him with conspiracy to defraud the United States by using undeclared accounts in the British Virgin Islands and at HSBC India to evade his income taxes. According to the indictment, employees at HSBC Holdings plc and its affiliates operating in the United States assured the depositor that accounts maintained in India would not be reported to the IRS. The indictment further charged that HSBC India employees advised and assisted the customer in concealing his Indian accounts from the IRS by:
dividing transferred funds into increments of less than $10,000 in order to "stay below the radar"; directing HSBC India to send Indian account statements to the depositor's father residing outside of the United States; transferring funds from other foreign accounts to HSBC India after converting the funds to non U.S. dollar denominations to avoid using the U.S. banking system; withdrawing funds from HSBC India in amounts less than thresholds that would trigger reporting to governmental authorities; and falsely assuring the depositor that the Indian accounts would not be reported to the IRS.
In 2002, HSBC's website stated that HSBC India opened a "representative office" at an HSBC USA office in New York City to enable "nonresident Indians" ("NRIs"), living in the United States to open accounts in India. In 2007, HSBC India opened a second representative office at an HSBC office in Freemont, Calif., purportedly to make banking transactions more convenient for the NRI community based in California. According to the petition, NRI clients have told IRS investigators that NRI representatives in the United States assured clients that they could invest in accounts at HSBC India without paying U.S. income tax on interest earned on the account, and that HSBC would not report the income earned on the HSBC India accounts to the IRS.
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