IRS Investigates Offshore Accounts

The U.S. tax code generally requires U.S. citizens to declare their worldwide income on their tax returns.  In an attempt to evade taxes, some wealthy Americans have set up secret accounts with foreign banks and failed to report income relating to those accounts.  While the IRS and Department of Justice may have trouble obtaining a foreign bank’s documents, they can obtain documents relating to that bank if that bank transacts business with an American bank.  Once they have the documents relating to the foreign bank, they can follow a paper trail to identify the American clients of the foreign bank.  This tactic was used by federal authorities several years ago in investigating American citizens who used Swiss banks to evade taxes.  As a result of that investigation, UBS, a Swiss-based bank, ultimately paid a $780 million to the IRS and disclosed the names of approximately 4,500 American citizens with undisclosed offshore accounts.  The IRS is now taking similar action against a Barbados bank by issuing a summons to Wells Fargo, the American bank with which the Barbados bank transacts business.

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