Debit cards, Offshore Funds and a John Doe Summons

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IRS remains committed to its priority efforts to stop offshore tax evasion wherever it occurs.  It pursues cases in all jurisdictions of the world.  Over the years, numerous individuals have been identified as evading US taxes by hiding income in offshore banks, brokerage accounts or nominee entities; using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

Of particular interest is the use of debit cards.  There are foreign offshore financial providers that advertise and promote the use of debit cards to access offshore funds.  They clearly describe the convenience of having debit cards attached to demand deposit accounts (DDAs’ -checking accounts).  However, they point out the risks associated with a debit card attached or linked to a DDA and suggest that the account holder turn to a pre-paid debit card.  The pre-paid debit card can be maintained by different banks, funded from third parties including the account holders’ accounts.  No name appears on the card so the identity of the account holder is not revealed when transactions occur.

Offshore anonymous pre-paid debit cards carry a Visa or Master Card Logo, are pre-paid, reloadable and don’t require a credit check. They can be used just like a credit card and pay for purchases, expenses, bills, etc.  These pre-paid debit cards are offered by some employers overseas to pay salaries to US citizens that have had their banks accounts closed due to FATCA.

IRS is focused on pre-paid debit cards.  These cards allow US Taxpayers to access offshore funds without revealing their identities. Taxpayers can access the funds in their pre-paid debit cards and are able to evade their related fiscal reporting obligations under the Internal Revenue Code.  How can the IRS come after a Taxpayer if it does not know his identity?  After all, these pre-paid debit-cards are “anonymous”. 

IRS has an investigative tool called a “John Doe” summons which is available to IRS through federal court approval.  IRS uses it as an investigative tool when casting a wide net to locate the names of US Taxpayers who would otherwise be unknowable to IRS. According to the IRS, “the Service may serve a John Doe summons pursuant to section 7609(f) after a court proceeding in which the Service establishes that: (1) the summons relates to the investigation of a particular person or ascertainable group or class of persons; (2) there is a reasonable basis for believing that the person, group, or class may fail or may have failed to comply with any internal revenue provision; and (3) the information sought from the examination of records and testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources”. 

It is called “John Doe” because the subject Taxpayer(s) has not been identified.  But, IRS has reasons to believe that such Taxpayer(s) is violating the law.  So, IRS will issue a “John Doe” summons against a pre-paid debit card provider and request the records of all the US Taxpayers that have been issued debit cards. 

IRS uses information gained from its investigations to pursue non-compliant Taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients to hide their assets overseas. The IRS works closely with the Department of Justice to prosecute tax evasion cases. The use of a “John Doe” summons is just one weapon in the arsenal. 

Don’t be a victim of your own making and don’t fall for advertisement that guarantees anonymity. IRS has access to information and will eventually discover the identity of those that don’t want to be identified.  

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