The Department of Justice and the Internal Revenue Service have recently reaffirmed their strong commitment to pursuing offshore tax evasion through the use of powerful investigative tools. One such tool is the IRS John Doe Summons.
On December 23, 2024, the United States District Court for the Southern District of New York granted the IRS authority to serve a John Doe Summons on Nevis Services Limited, a Trident Trust Group affiliate based in New York City. Trident Trust is one of the world’s largest independent corporate and trust service providers.
The summons seeks information about U.S. taxpayers who may have used the services of Nevis Services Limited, or those of other entities within the broad Trident Trust Group in the time frame 2014-2023 to establish offshore structures to conceal ownership of financial accounts and assets. By obtaining these records, the IRS expects to be able to identify Trident Trust Group clients who used the Group’s services to avoid or evade U.S. taxes. Unfortunately, some innocent taxpayers may be caught in the net, especially those holding accounts and entities simply as a nominee. Hopefully, they have properly documented any nominee relationships.
The court also granted the IRS authority to serve summonses on numerous financial institutions and courier services such as the Federal Reserve Bank of New York, HSBC Bank, Citibank, FedEx Corporation, DHL Express and United Parcel Service. The summonses to these financial institutions and courier services direct them to produce records that will enable the IRS to identify U.S. taxpayers who have sent or received money or documents to or from the Trident Trust Group.
What Is An IRS John Doe Summons?
The IRS John Doe Summons has proved to be a very powerful weapon against tax evaders whose specific identities are not known to the IRS. It is unlike the traditional summons used routinely by the IRS in tax investigations. A traditional summons must identify the taxpayer whose conduct is in question; it is not helpful when the taxpayers are not known.
The IRS must demonstrate certain elements in order for the IRS John Doe Summons to be issued and a federal judge must approve issuance before it can be enforced. For a court to approve an IRS John Doe Summons, the IRS must demonstrate a reasonable basis to believe that tax law violations have occurred and that the requested information is not readily available from other sources. Once issued, the recipient has the burden of proving that some reason exists that should bar enforcement of the summons.
Continued Success With IRS John Doe Summons
In recent years, the IRS has successfully used the John Doe Summons in connection with uncovering taxpayers with undisclosed offshore accounts at foreign banks, and domestically in 2016, against Coinbase one of the largest digital currency exchange firms in the U.S. The John Doe Summons in Coinbase mandated the firm disclose the account records of over 14,000 customers whose Bitcoin transactions exceeded $20,000 per annum so the authorities could identify and obtain evidence on individuals using Bitcoin to either launder money or conceal income. After a legal battle, Coinbase complied partially in 2017. The case highlighted the IRS focus on the emerging digital asset space and its ability to enforce compliance through intermediaries.
Attorney-Client Privilege: No Bar To IRS John Doe Summons
Even the attorney-client privilege cannot bar use of the IRS John Doe Summons. This privilege preserves the confidentiality of communications between a lawyer and her clients. When the privilege is in place, attorneys may not divulge their clients’ communications even in court proceedings or when asked for such information by the IRS.
This protection is in place to encourage clients to openly share information with the attorney by having faith in the confidential nature of the communications. Providing the attorney with full and open disclosure of the facts enables the attorney to provide effective representation which would not otherwise be possible. When a John Doe Summons is issued to a law firm, this creates significant tension within the parameters of the privilege.
In 2019, an IRS John Doe Summons was used to obtain information about the identities of clients who used a well-known trusts and estates planning law firm to establish offshore structures. (Taylor Lohmeyer Law Firm PLLC v. United States, Western District of Texas, May 17, 2019). The IRS presented evidence suggesting that the law firm had facilitated these arrangements and sought client records to identify potential tax violators. The clients whose identities were in question were suspected of having used the law firm’s services (e.g., creation of foreign trusts or foreign companies) to hide income offshore.
The law firm challenged the summons, arguing it violated attorney-client privilege, but lower courts ruled against this claim. Unlike client communications, a client’s identity is not normally within the attorney-client privilege. The U.S. Supreme Court ultimately denied the firm’s petition for certiorari, effectively affirming the lower court rulings and allowing the summons to proceed. In a nutshell, while the law firm did not have to turn over client memos, notes and files, it was still required to identify the relevant clients, who invariably were audited by the IRS. The Taylor Lohmeyer Law Firm case highlights the IRS’ ability to pierce professional confidentiality claims when investigating potential tax evasion through offshore structures.
Taxpayers And Service Providers
The Trident Trust development serves as a continued stark warning to U.S. taxpayers about the risks of hiding assets offshore. The IRS has consistently prioritized cracking down on offshore tax evasion, leveraging tools like the IRS John Doe Summons in conjunction with global information-sharing agreements, such as those established under FATCA.
Noncompliant taxpayers could face substantial penalties, criminal charges, or both. Those having concerns that their name may be turned over, need highly competent professional tax guidance to evaluate the situation and advise on the best course of action.
For financial intermediaries, this case highlights the growing scrutiny on service providers facilitating cross-border financial activities. Companies like Trident Trust must now weigh the reputational and legal risks of serving clients who may be seeking to exploit offshore jurisdictions for tax evasion. Trident Trust is legally obligated to comply with the court ordered summons unless it can successfully challenge the order on grounds such as overbreadth or undue burden.
Conclusion
The IRS John Doe Summons remains one of the most effective tools in uncovering tax evasion and promoting compliance. By leveraging this legal instrument against entities such as Trident Trust, the IRS demonstrates its ability to navigate complex offshore financial networks and hold accountable those who attempt to evade their tax obligations. This case reinforces the message that no financial intermediary or taxpayer is beyond the reach of U.S. tax laws. As global transparency efforts intensify, the use of IRS John Doe Summonses will likely continue to shape the landscape of international tax enforcement.
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