SAN FRANCISCO (MarketWatch) — In their latest salvo against taxpayers who stash money offshore, and banks who may enable the practice, the U.S. Justice Department and Internal Revenue Service on Thursday sought a federal court's authorization to force HSBC Bank USA to reveal the names of its U.S. customers with accounts in India.
The Justice Department and IRS seek to serve a "John Doe" summons on HSBC USA (HBC 54.35, -0.23, -0.42%) "to obtain information about possible tax fraud by people whose identities are unknown," the government said in a news release.
The U.S. government's action Thursday parallels a similar strategy used to uncover the names of U.S. customers at another bank — UBS (UBS 18.63, -0.07, -0.39%) — with offshore accounts in Switzerland, said Robert McKenzie, a partner in the Chicago-based law firm Arnstein & Lehr. Ultimately, UBS released the names of about 4,500 customers.
In that case, there was "a criminal investigation against the bank but the second element is the IRS sought permission and issued John Doe summonses and demanded 52,000 names from UBS," McKenzie said.
The court petition today follows earlier government moves to uncover offshore accounts in India. In January, a Newark, N.J., man was charged with conspiracy to defraud the U.S. by using offshore accounts in the British Virgin Islands and at HSBC India to evade income taxes.
And, in the fall of 2010, McKenzie said, the Justice Department mailed letters to some U.S. residents with HSBC accounts. McKenzie currently represents an HSBC customer in his negotiations with the Justice Department.
"Letters went out to many Indian Americans saying, 'We know you have a foreign bank account; please call to discuss,' signed by the Department of Justice, so it was not a civil investigation; it was already a criminal investigation," McKenzie said.
For its part, HSBC said it has complied with the law.
"While we haven't seen the summons, HSBC does not condone tax evasion and fully supports the U.S. efforts to promote appropriate payment of taxes by U.S. taxpayers," Juanita Gutierrez, a bank spokeswoman, said in an email on Thursday. "While complying with the law in all the jurisdictions in which it operates, including India, HSBC cooperates with requests from U.S. authorities," she said. "We have been engaged in a constructive dialogue with U.S. authorities. We hope any 'IRS summons' issues can be resolved expeditiously."
Got an account? Get in before the deadline
The message for taxpayers with offshore accounts? Report that account soon. The deadline to come in under the IRS's latest offshore voluntary disclosure initiative, if you're eligible, is Aug. 31. (U.S. taxpayers are required to report foreign bank accounts if their value tops $10,000 at any time in a calendar year.) Read more about the amnesty program on IRS.gov.
"The IRS continues to focus its attention on international tax evasion," IRS Commissioner Doug Shulman said in the news release. "This summons request is focused on obtaining more information to help us determine if additional actions are needed. As I've said all along, our international efforts are not about just one country or one bank — it's about our wider effort to ensure compliance with the nation's tax laws."
Under the IRS amnesty program, taxpayers can avoid a major hit: possible criminal charges, and a bill totaling 50% of the account's value for each year it wasn't reported to the IRS, among other penalties.
Still, the amnesty program comes with its own costs, including a one-time penalty of 25% of the account's value, any back taxes owed, and interest and penalties on the unpaid taxes. See this IRS page for an example that details the penalties.
The federal court in San Francisco is likely to grant the government's petition to force the bank to reveal the names, McKenzie said, adding that India is less likely than Switzerland to protect people's names. "I don't believe the Indian government will aggressively assert their privacy laws at the same level the Swiss did," he said.
If and when names are disclosed, McKenzie said, "the IRS is going to choose a select group of those and indict them, as they did with the UBS names."
Andrea Coombes is MarketWatch's personal finance editor, based in San Francisco.
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