August 9, 2021

Judge Enables Panama Tax-Fraud Probe to Trace and Identify Potential Tax Evasion

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We regularly remind our readers that U.S. taxpayers are required to pay taxes on all income earned worldwide.¹ And we have continued to emphasize the increasing IRS scrutiny directed to insure that U.S. taxpayers are also disclosing certain foreign financial accounts and assets. Now, a recent ruling issued by a federal district court judge for the Southern District of New York highlights the IRS’s continued commitment to hold US taxpayers accountable in cases involving offshore service providers that design strategies to facilitate U.S. tax avoidance. 

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On July 29, 2021, a news release from the Department of Justice (DOJ) website reports that a federal district court judge for the Southern District of New York will permit the Internal Revenue Service (IRS) to obtain information from banks and couriers, via IRS John Doe summonses, about U.S. taxpayers who may have used the services of Panama Offshore Legal Services (POLS) to evade federal income taxes.² More specifically, the federal judge entered an order:

authorizing the IRS to issue summonses requiring multiple couriers and financial institutions to produce information about U.S. taxpayers who may have used the services of Panama Offshore Legal Services (“POLS”) and its associates (together, the “POLS Group”) to evade federal income taxes.  Specifically, the IRS summonses seek to trace courier deliveries and electronic fund transfers between the POLS Group and its clients, in order to identify the POLS Group’s U.S. taxpayer clients who have used the POLS Group’s services to create or control foreign assets and entities to avoid compliance with their U.S. tax obligations.³

In the news release, the DOJ describes POLS as “a Panamanian law firm that advertises services, including to U.S.-based clients, to assist in concealing ownership of offshore entities and accounts.”⁴ The DOJ clarifies that POLS services include, but are not limited to, organizing entities and setting up offshore financial accounts which are intended to hide assets and evade taxes. According to the DOJ, POLS very openly advertises such services, highlighting its ability to “assist clients with concealing and avoiding taxes.”⁵ Significantly, the DOJ notes that at least one U.S. taxpayer who made voluntary disclosures through the IRS’s now obsolete Offshore Voluntary Disclosure Program (OVDP) has already demonstrated to the IRS that POLS was complicit in that taxpayer’s tax avoidance endeavor(s). 

Per the DOJ, the following 10 entities are the targeted recipients of the John Doe Summonses: Federal Express Corporation; FedEx Ground Package System, Inc.; DHL Express; United Parcel Service, Inc.; the Federal Reserve Bank of New York; The Clearing House Payments Company LLC; HSBC Bank USA, N.A.; Citibank, N.A.; Wells Fargo Bank, N.A.; and Bank of America, N.A. And while there is no allegation in this specific action that either the individual taxpayers or the couriers and banks have engaged in any wrongdoing, the John Doe summonses will enable the IRS to compel the production of information to identify those U.S. taxpayers who used the POLS Group’s services and reveal other records relating to the POLS Group’s business. 

In the news release, IRS Commissioner Charles P. Rettig emphasized that:

These court-ordered summonses should put on notice every individual and business seeking to avoid paying their fair share of taxes by hiding assets in offshore accounts and companies.  These records will empower the IRS and the Department of Justice to find those attempting to skirt their tax obligations and ensure their compliance with the U.S. tax laws.⁶

We urge our readers to consult with a tax professional if they have questions or concerns about offshore accounts. Although the OVDP is obsolete as of 2018, taxpayers who may have committed fraud, but remain unidentified as of yet, may want to seriously consider securing entry into the Voluntary Disclosure Program before becoming ineligible.

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