Voluntary Disclosure, John Doe Summons and Undisclosed Offshore Accounts

By Expat News

The IRS is counting major victories in finding undisclosed offshore accounts and non-compliant taxpayers. The information is coming from various sources: FATCA, Offshore Voluntary Disclosure Program, whistle-blowers, ISIJ report about offshore banking accounts and “John Doe” Summons. We earlier wrote an article about IRS Voluntary Disclosure Program. The Offshore Voluntary Disclosure Program has been a huge success since its introduction in 2009. The average offshore penalty levied on the taxpayers that participated in 2009 Voluntary Disclosure Program was about $376,000. The interesting part is that almost half of 19,337 participants in the 2009 Voluntary Disclosure Program had undisclosed accounts in Switzerland. Back in 2008 the IRS used “John Doe” summons to get the information about US account holders in Swiss bank UBS that eventually participated in the 2009 OVDP. Moreover, as of December 2012, the IRS has collected about $5.5 billion in revenue from over 39,000 disclosures under the OVDP 2009-2012.

IRS Voluntary Disclosure Program, Offshore Accounts and John Doe Summons

Can the IRS obtain the information about undisclosed Offshore accounts from OVDP participants?

The answer is yes. Most participants of the IRS Voluntary Disclosure Program entered the program by using an experienced tax professional. Some of these taxpayers had in-person interviews with the IRS agents. As a result of these interviews, the IRS obtained additional information not only about the taxpayers but also about potential undisclosed offshore accounts. The participants of the OVDP were required to provide not only the names of all foreign financial institutions and financial accounts details but also the name of contact person at each financial institutions, the details of each meeting with these “contacts” at these foreign institutions.

Moreover, the IRS agents input all information about offshore accounts and financial contacts in the E-Trak system. This information is used to identify undisclosed offshore accounts. The next step is to issue John Doe summons and to request the information about US account holders directly from foreign banks. The latest events have clearly indicated that the foreign financial institutions are more than willing to cooperate with the IRS to avoid severe consequences.

Which foreign financial institutions received John Doe summons from the IRS in November 2013?

The court order has been issued on November 12, 2013. Per the court decision, the IRS will issue John Doe summonses to the following banks:

– National Association (“JPMorgan”)

– The Bank of New York Mellon (“Mellon”)

– HSBC Bank USA, National Association (“HSBC”)

– Bank of America, National Association (“Bank of America”)

– Citibank, National Association (“Citibank”)

The purpose of these summonses is to get more information about undisclosed offshore accounts at Bank of N.T. Butterfield & Son Limited in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the United Kingdom. The IRS is using more sophisticated ways to obtain valuable information. The above-mentioned US banks with correspondent bank accounts for these foreign financial institutions will have to provide the IRS with the transactions that have been done on behalf of US customers of these foreign banks. The key thing is that the IRS will have an access to all US taxpayers that have financial accounts in these foreign banks. Any closed accounts will be reported too. The taxpayers can judge for themselves: John Doe Summons issues to UBS in Switzerland and HSBC in India had a profound impact.

Another thing to remember is that the taxpayers with undisclosed offshore accounts at these banks will not qualify to participate in the IRS Offshore Voluntary Disclosure Program and might face the criminal prosecution.


American expats living abroad should take proactive steps to become compliant. Low-risk taxpayers can participate in the IRS Streamlined Program for American expats. American expats must explore their options and get back into the system before the IRS finds their undisclosed offshore accounts. There are significant IRS developments every month. For example, the Cayman Islands and Costa Rica signed the FATCA intergovernmental agreement with the USA at the end of November 2013. More FATCA agreements are on the way. Effective July 1, 2014 foreign financial institutions will be required to report the information about the financial accounts of US persons. The IRS gets more information every day so it is paramount to become compliant. International tax experts will be pleased to evaluate the options and advise American expats living abroad.