We’ve written at length about the IRS moving past UBS and Swiss accounts and focusing on other banks world-wide. We’ve pointed out that non-compliant accounts in India are being targeted, see here.
On April 7, 2011, the Department of Justice (DOJ) asked a Federal Court in California to issue a “John Doe Summons” against HSBC which asks for the names of US taxpayers with accounts at HSBC in India.
Here are various reports:
What can we take away from this latest development:
1. The IRS crackdown is world-wide. Although traditionally, countries such as Switzerland, Cayman Islands, Jersey, Guernsey and various others were considered to be “tax haven” jurisdictions, the IRS investigation is broad and world-wide and now covers India. India, as we know, is an American ally with a stable democracy, a strong economy and is not known as a tax haven. Nevertheless, it is an IRS target.
2. As we’ve written, banking secrecy no longer exists. See our article, “The Death of Bank Secrecy”, here.
3. The “John Doe Summons” is an important, effective weapon for prosecutors to uncover once-“secret” banking information from foreign financial institutions. UBS settled civil and criminal tax fraud charges by DOJ, and Swiss banking secrecy ultimately ended, as a result of the John Doe summons served against UBS. It was once thought that without actual names of account holders and account numbers, prosecutors could not obtain information from foreign banks. The success of the John Doe summons against UBS proved otherwise. Now, a broad class of account holders, not identified specifically other than “Americans with accounts at HSBC”, are vulnerable to discovery and prosecution by the government.
4. Given HSBC’s sizeable presence in the US – – branches in the US, employees in the US, assets in the US and a lucrative banking license in the US – – it is clearly within the jurisdiction of the US courts. HSBC, like UBS before it, will likely cooperate and, sooner or later, provide the requested banking data to US authorities.
5. All of the above again goes to show that American taxpayers with non-compliant foreign accounts, whether in India or elsewhere, should take steps to bring those accounts into tax compliance. In February, the IRS announced a new Offshore Voluntary Disclosure Initiative (OVDI) that ends on August 31, 2011. Americans with non-compliant foreign accounts should take heed of the IRS and DOJ prosecutions and consult with a tax lawyer. If the IRS obtains the account information first (for example, as a result of a John Doe Summons, audit, investigation, whistle blower or otherwise), then a taxpayer’s disclosure will be considered untimely and will be rejected, in which case the full range of penalties will apply, including criminal prosecution. As we’ve advised in the past, see us before the IRS comes to you.