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IRS Still Seeking to Identify Offshore Account Holders

Pursuing information obtained from individual taxpayers participating in the Offshore Voluntary Disclosure Program, the IRS identified Canadian Imperial Bank of Commerce FirstCarribean International Bank (FCIB) as a foreign financial institution at which many U.S. taxpayers may be keeping accounts in an attempt to evade U.S. taxation. However, because FCIB does not have any U.S. locations, obtaining jurisdiction over the bank in order to demand information, documents, and records has been challenging for the IRS. Nevertheless, finding a creative loophole in its jurisdictional limits, the IRS recently served a John Doe summons to Wells Fargo & Co., a U.S. bank where FCIB maintains a correspondent account.

Correspondent accounts are commonly used in the financial industry to allow small institutions with fewer locations, such as FCIB, to receive deposits and make payments through an account at a larger institution, such as Wells Fargo. These types of accounts also allow foreign banks to transact in domestic currency.

The summons requires Wells Fargo to provide the IRS with information regarding the transaction activity in FCIB's correspondent account between tax years 2004 and 2012. This information is likely to reveal the names and account numbers of many U.S. taxpayers who have yet to disclose their ownership of offshore accounts to the IRS.

Yet FCIB account holders are not the only ones who will be affected by this summons. IRS acting Commissioner Steven T. Miller stated that, "Our work here shows our resolve to pursue these cases in all parts of the world." The IRS has effectively forced larger financial institutions such as Switzerland's UBS into compliance through civil examinations, criminal investigations, and, most recently, FATCA agreements with foreign governments that subject foreign financial institutions that do business with U.S. taxpayers to U.S. filing and reporting requirements.

This move by the IRS is a demonstration of its intention and ability to persistently track down U.S. taxpayers who attempt to evade taxes by hiding funds offshore. Though the IRS has offered several voluntary disclosure programs offering amnesty from criminal prosecution to taxpayers who decide to come forward, they have warned that these programs will not be available forever. As the U.S. government's search narrows in on smaller financial institutions in lesser-known countries, the opportunity to disclose an offshore account before the IRS discovers it becomes more and more slim.

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