IRS Continues to Mine Data from OVDP – Uncovering More Undisclosed Accounts

Data Mining

Since 2009 with the inception of the first Internal Revenue Service Offshore Voluntary Disclosure Program (OVDP), over 38,000 taxpayers have provided detailed information to the IRS which has been steadily fed into its E–Trak System. The information has come from those participating in the various IRS’s Offshore Voluntary Disclosure Initiatives and Programs (OVDI/OVDP). There have now been three separate programs with more and more taxpayers coming forward.

Some taxpayers entering the Programs have had face-to-face interviews with the IRS and/orthe Department of Justice, providing even more detailed information that has gone into the E-Trak system. As time goes on, the information fed into E-Trak increases and most assuredly, so does the risk of detection of an undisclosed account. The foreign banks have demonstrated a definite willingness to be very forthcoming with the IRS in providing information about those persons whom they have assisted in the creation and maintenance of overseas accounts. Any taxpayer with undisclosed accounts who is relying on “banking secrecy” is sure to get burned in time… and more burns are now on the way!

More Undisclosed Accounts Found

The US Government announced that based on the information obtained from the OVDPs, they are currently following up on new leads to ensnare more undisclosed offshore accounts. Just a few weeks ago the US Government obtained a court order authorizing the issuance of so-called “John Doe summonses” to certain US banks that will yield information about US account holders at Zurcher Kantonalbank in Switzerland and Bank of N.T. Butterfield & Son Ltd. in the Bahamas, Barbados, the Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the United Kingdom.

The summonses will be used in a very unique manner – they will mandate that the US banks that hold what is known as a “correspondent bank account” for the foreign banks turn over records on the transactions that the US banks conducted for the foreign banks’ US customers. The US banks to receive the John Doe summonses are Bank of New York Mellon, Citibank NA, JPMorgan Chase Bank NA, HSBC Bank USA NA, and Bank of America NA. The government announced it has identified over 450 previously undisclosed accounts in only 2 of the banks under investigation.

Once the US Government obtains information about the undisclosed account and its holder, that taxpayer will no longer be eligible to join the OVDP and could face possible criminal action.

John Doe – Meet the IRS and the Department of Justice!

The John Doe Summons has proved to be a very powerful IRS weapon in the battle against overseas tax evaders. Many innocent taxpayers, unaware of various filing obligations with regard to foreign accounts, have also been caught in the net. The IRS has been successfully using this type of summons to obtain information about possible tax evasion by persons whose identities are not known to the IRS. A “John Doe Summons” generally directs the foreign financial institution (e.g., a non-US bank, such as HSBC India or UBS in Switzerland) to produce records identifying all US persons having active or closed accounts at the institution. In requesting the summons, the IRS seeks to flush out Americans believed to be hiding their offshore accounts and other assets from the IRS.

If you think you are safe simply because you closed out your foreign account – think again. Banks are giving up information about those who have closed their accounts. So, merely having closed out the account won’t help. In fact, closing out the account can serve as evidence against you for possible criminal intent.

Get Proper Advice – The Importance of Attorney-Client Privilege

Only by consulting an attorney can the information and documentation you reveal be given protection from disclosure to the US tax authorities pursuant to the attorney-client privilege. Accountants and financial advisors do not have this privilege. If your matter must be worked on with such third parties, it is best if your attorney works under a so-called Kovel agreement which generally tries to extend the attorney-client privilege to information revealed to these persons.

In accordance with Circular 230 Disclosure

Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has 30 years of experience specializing in US and international tax planning as well as international commercial transactions. She has been based in Dubai since 2001; prior to that time she worked in Hong Kong for 15 years as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies. Early in her career she worked in New York with the top-tier international law firm, Willkie Farr & Gallagher.

Virginia is regularly asked to speak at numerous conferences and seminars for various institutes and commercial organizations; publishes a vast array of scholarly works in her area of expertise, been interviewed by CNN and is regularly quoted (or has her articles featured) in local and international publications. She was recently appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. She was a guest lecturer at the University of Hong Kong, LL.M Program (Law Department) and served as an adjunct Business Law professor at the American University of Dubai and at the American University of Sharjah where she also taught the legal / ethical aspects of internet law and internet based transactions.


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