IRS Gets Approval for 'John Doe' Summons

A federal district judge in Miami has approved a request by the Internal Revenue Service to obtain access to records of owners of MasterCard credit cards in 30 countries. The countries named in the summons request include Liechtenstein, Switzerland, and several Caribbean nations including Cayman Islands and Bermuda. The IRS suspects U.S. citizens are using the offshore credit cards as a means of diverting income from U.S. taxation. "The information expected in response to the summons will help the IRS identify people who use offshore accounts to evade their United States income tax liabilities," said a Justice Department spokesperson.

Earlier this year the IRS gained permission to examine records of American Express and VISA cardholders. An earlier summons also permitted the IRS to examine records from MasterCard cardholders from 1998 and 1999, but only from a few countries. This new summons extends examination to cardholder records for the years 1999, 2000, and 2001 in the 30 named countries.

Taxpayers with signature authority over funds located in foreign bank accounts that exceed $10,000 at any time during the year are required to report the existence of such accounts on their federal income tax return. Only 117,000 taxpayers reported the existence of such accounts on 1999 income tax returns. The IRS estimates that between 1 million and 2 million U.S. citizens use credit cards issued by offshore banks as a means of drawing on funds deposited offshore and that many of these exceed the $10,000 reporting threshold.

MasterCard has agreed to work with the IRS but hopes to find a way to maintain a certain level of privacy regarding cardholders. "Because of the scope of the IRS request, we will need to work with them to determine how best to comply in a manner consistent with U.S. law, but which recognizes the legitimate privacy concerns of our members and their customers in the countries identified in the request," the credit card company said in a recent statement. The concern about customer privacy may well be a reference to the recent public IRS disclosure of the names of participants in tax shelters that are under investigation.

The "John Doe" Summons approved by the federal court enables the IRS to seek information about unknown persons. By definition, a John Doe Summons is any summons which does not identify the person with respect to whose liability the summons is issued. A John Doe summons can only be served after approval by a Federal court.


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