IRS expands use of tax tactic --- Offshore operations of some banks targeted to ferret out cheats
MIAMI -- A legal tactic the US Internal Revenue Service has used in an attempt to learn the identities of UBS AG's private-bank clients will now be deployed against other offshore-banking operations, an IRS agent told a conference.
In a showdown with UBS, the US Justice Department last July used a "John Doe" summons to investigate alleged tax fraud by people whose identities aren't known because of Switzerland's bank-secrecy laws. It marked the first time that a foreign bank had been served with such a summons.
The move ratcheted up pressure on the Zurich bank in the battle over tax secrecy. In a separate matter, UBS in February agreed to settle a criminal inquiry and turn over dozens of client names to U.S. prosecutors. And over the weekend, Switzerland asked the U.S. to drop a case involving UBS in return for passing a tax pact between the two countries.
Daniel Reeves, a lead IRS agent in the UBS case, said Monday that the IRS is planning to pursue John Doe summonses against other banks. Mr. Reeves made the comments Monday at OffshoreAlert's financial conference in Miami.
"We have identified other offshore banks" that are expected to receive the summons, Mr. Reeves said. Mr. Reeves declined to provide more details after speaking.
The summons could be used against any offshore-banking entity, including a U.S. bank operating offshore.
Before it can serve a John Doe summons, the IRS must receive approval from a U.S. district court judge. The summons has been used as part of a wider IRS crackdown on offshore financial systems that allow U.S. citizens to evade taxes.
Mr. Reeves said the John Doe summonses are used as the IRS seeks to answer critical questions, or "choke points," such as how assets are moved offshore and then used in the future when a tax evader wants to tap untaxed income.
Mr. Reeves appeared with John McDougal, an IRS special trial attorney, in a public presentation about the IRS's pursuit of tax cheats. On Tuesday, Mr. McDougal is expected to discuss UBS along with Robert Roach, counsel and chief investigator of the U.S. Senate Permanent Subcommittee on Investigations.
This month, one UBS client, Robert Moran, pleaded guilty to filing a false income-tax return. Another client, Steven Michael Rubinstein, was charged with filing a false income-tax return after failing to report income and assets in concealed UBS accounts. Mr. Rubinstein's lawyer declined to comment. Mr. Moran didn't respond to a request for comment.
Criminal defense attorneys also discussed Monday how to fend off prosecutors. Edward M. Robbins Jr., a tax attorney who has worked on a UBS case, said that if prosecutors gain access to a client's detailed bank records, it can make for a challenging situation.
"It's basically a slam dunk" for the government's case, Mr. Robbins said during his presentation. In an interview, Mr. Robbins said he expected more UBS clients to be indicted in the near future.
--By Carrick Mollenkamp
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