March 22, 2016
IRS Expands Efforts to
Offshore Tax Evasion
In a search for financial records of a U.S. taxpayer who allegedly
parked undeclared income offshore, the Internal Revenue Service (IRS) and the U.S. Department
of Justice (DoJ) are seeking to enforce a summons against a U.S. branch of a foreign bank for
records held by a foreign branch of that bank. This heightened enforcement evidences the
resolve of the IRS and the DoJ to use the huge store of information about offshore
accountsand about the financial institutions that hold themdisclosed over
the past half-decade of their enforcement efforts.
On February 23, 2016, the U.S. Government sued UBS AG's Miami branch
to enforce an IRS administrative summons seeking records held by UBS AG's Singapore branch
and relating to a U.S. taxpayer who allegedly has not paid his U.S. federal income taxes.
United States of America's Petition to Enforce IRS Administrative Summons, United
States v. UBS AG, No. 1:16-mc-20653 (S.D. Fla. Feb 23, 2016). The court filings assert
that the U.S. taxpayer was educated in the United States and previously worked in the
technology industry in California. It is alleged that he now lives in China. For background,
see US Taxman Going After UBS Account in Singapore
(The Straits Times, March 5, 2016).
This move is worth exploring both for its history and its
- The IRS has a problem obtaining tax-related financial information from Singapore
because of its bank secrecy laws, compounded by the fact that the United States has no
income tax treaty or tax information exchange agreements with Singapore.
- The summons is a Bank of Nova Scotia summons, so named because of the leading
authority empowering a U.S. court to enforce a subpoena compelling a U.S. branch of a
bank to produce records held by a non-U.S. branch of the same bank, even where production
would violate the bank secrecy laws governing the non-U.S. branch. See In Re Grand
Jury Proceedings (Bank of Nova Scotia), 740 F.2d 817 (11th Cir.), cert. denied, 469 U.S.
1106 (1985); In Re Grand Jury Proceedings (Bank of Nova Scotia), 691 F.2d 1384 (11th Cir.
1982), cert. denied, 462 U.S. 1119 (1983).
- After the conclusion of the DoJ's Swiss bank non-prosecution program at the end of
2015 (which resulted in non-prosecution agreements with over 80 Swiss banks, raising over
$1 billion for the U.S. Treasury), the use of the summons is widely interpreted as the beginning
of a shift of enforcement to other offshore jurisdictions, including Singapore. As a result
of information produced in criminal prosecutions, in the Swiss bank program and in the IRS's
voluntary disclosure programs for individuals, the DoJ and the IRS have collected huge amounts
of information about patterns of offshore evasion. They now want to use that information.
- The summons should also concern U.S. taxpayers who work in industries characterized by high
mobility in employment. The DoJ and the IRS appear to be signaling that they have a wealth of
information about tax avoidance involving offshore accounts, a significant amount of which may
have been gathered from the DoJ's Swiss bank program, and have the will and the tools to police it.
- The court filings suggest that the U.S. taxpayer opened his account with UBS AG's Singapore
branch (and possibly also closed it) prior to the passage of the Foreign Account Tax Compliance Act
(FATCA) and the effective date of the Agreement between the Government of the United States of
America and the Government of the Republic of Singapore to Improve International Tax Compliance
and to Implement FATCA (IGA), which effectively impose due diligence and reporting obligations
on Singapore financial institutions that open accounts for U.S. persons.
- The summons evidences the effort by the DoJ and the IRS to investigate U.S. persons who
moved funds from Swiss banks to other jurisdiction accounts in an effort to avoid detection under
the Swiss Bank Program. It can be anticipated that similar summonses will be issued to other
“destination” jurisdictions as a consequence of the information obtained from Swiss banks and
from voluntary disclosures, among other sources. The DoJ and the IRS view the closing of a Swiss
account and the moving of funds to another non-U.S. jurisdiction account as facts consistent
with willful failures and thus could lead to criminal prosecution. Taxpayers in such
situations are thus well advised to come forward under the Voluntary Disclosure Program.
Going forward, FACTA compliance will provide additional information for the IRS to use in
pursuing U.S. persons holding undeclared foreign accounts, particularly through non-U.S.
holding entities and foreign trusts. Also, going forward, FACTA financial institution due
diligence requirements and the increasing use of information exchange agreements will
significantly aid the enforcement efforts of the IRS and foreign jurisdiction tax authorities.
For further information please contact
William E. Bonano (San Francisco),
Nora E. Burke (New York) or
Brian Wainwright (Palo Alto).
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