Rumors of Additional Grand Jury Subpoenas and John Doe Summonses Against Foreign Banks (9/10/11)

Jeff Neiman has a new blog entry, Reuters: Enforcement Action Against Ten Swiss Banks in the Works (9/10/11), here, reporting on a Lynnley Browning Reuters report of subpoena / John Doe summons action that are being prepared to blast information out perhaps 10 foreign banks. (Ms. Browning's report is here; as I get additional links for information I deem useful on this subject, I will post them below.) The reported rumor is that the request will be for accounts of "as low as $50,000." Jeff's discussion is excellent, so I encourage readers to go to that discussion. My comments are:

1. While assisting clients having a significant, sometimes, large number of foreign financial accounts scattered in relatively low amounts among a number of foreign financial institutions, the sheer number of accounts created logistical difficulties in making a proper assessment of the risks of not getting into the voluntary disclosure programs and, if the client entered the programs, then the processing of the information and documents for the final package. But when that significant or large number of accounts involved relatively small amounts and relatively small aggregate amounts, even beyond the logistics issues, the upfront decision was tilted in favor of joining the programs and will affect the decision whether to opt out. Specifically, the nonwillful penalty (up to $10,000) is per account per year. For example, in the worst cases (the criminal cases to date), the Government has demanded only a single FBAR willful penalty of 50% of the highest amount in the foreign financial account(s) in the highest year(which does not include foreign assets, such as real estate). This 50% willful penalty asserted in the criminal cases could be significant, but still represents a Government decision not to press for larger penalties by including more years otherwise permitted by the FBAR statute. (There could be some constitutional issues of Excessive Fines and perhaps due process in asserting higher FBAR penalties; see the tag below.) But, with a large number of accounts, the IRS could go for the nonwillful penalty, designed to punish less culpability, and easily extract the same or a larger penalty than the willful penalty depending upon a combination of the aggregate numbers and the number of accounts. The problem with trying to assess what the risks are with respect to the nonwillful penalty (assuming that the lawyer and client properly reach a conclusion of unlikelihood of criminal risk, civil fraud risk, and willfulness risks, which are all variations of the same them) is that we don't have enough of a populated data base to anticipate what the IRS will do in nonwillful cases. The nonwillful penalties are up to $10,000 per account per year and the IRS agent has a lot of discretion, even in cases where there is no reasonable cause, as to what to do -- including merely issuing a slap on the hand letter saying, in effect, go forth and sin no more. We just don't know based on real information data points (including the discussion in the IRM), so many clients in this profile were not willing to take the risk of going forth and sinning no more, but taking the audit risk for past years. They were pushed into the program, thus capping the civil penalties with the notion of perhaps opting out for audit after better information is available as to what might happen on audit.
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John Doe Summonses & Statutes Of Limitations (5/27/11)

This week, a district court denied an IRS request for an order authorizing issuance of a John Doe Summons.  Readers will recall that Section 7609(f) permits the IRS to issue John Doe Summonses seeking tax related information and documents about unknown taxpayers. These taxpayers are unknown, so the IRS cannot give notice to the taxpayers who can then contest the summons. So, Congress required that a federal district judge approve the issuance of the summons.

The IRS sought the court order authorizing it to serve a John Doe summons to the California Board of Equalization for certain a certain discrete record set that would help the IRS identify persons making gift transfers to non-spouse related parties which, the IRS imagined, might have compliance issues with the gift tax. I won't get into the details of the focus of the IRS's interest, since the principal focus would be civil compliance initiatives. The judge refused to authorize the summons, finding that the IRS had not shown that the information and documents were not otherwise reasonably available. Further, although dismissing the motion for authorization without prejudice on the basis stated, the Court cautioned that, if the IRS were to repackage the motion, the court had some serious concerns about whether the IRS could otherwise qualify.  The opinion is here.
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HSBC Targeted in Offshore Banking Juggernaut - John Doe Order Granted!!! (4/7/11)

The IRS has issued a "John Doe" Summons with the U.S. District Court in SF, according to a DOJ news release here.  Readers will remember that this was an opening salvo in the spat with UBS that led to a deferred prosecution agreement, $780 million  payment to the U.S., and the turn over of a bunch -- 4,500 -- names.  It is uglier and likely to get uglier for HSBC.  And how about the other banks?

Just curious because I was thinking about it today.  Why doesn't DOJ just get a John Doe grand jury subpoena and cut to the quick?

Update 4/8/11:  The order allowing the John Doe Summons was granted (see here).  (Editorial comment: I hope none of my readers are surprised.)
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DOJ Tax Seeks John Doe Summons for Stanford Group Investors

The Stanford Group maintain offshore financial accounts for its investors / depositors. It is thus not surprising that DOJ Tax is seeking that information via a John Doe Summons. Here is the press release. More business for the tax enforcers and for the lawyers who assist taxpayers caught up in the mess. According to the preliminary internet chatter, the investors who already feel aggrieved think -- or at least assert -- the Government is piling on.

These taxpayers with offshore Stanford accounts already had the opportunity to join the special voluntary disclosure initiative which ended 10/15/09. This bunch who have lost much or all of their offshore investment (at least those who did not pull out before the end) may truly not have anything left to make the type of payments required under the earlier initiative, much less any more onerous amounts that may be required of late comers.