On May 1, 2019, the U.S. Department of Justice announced that a U.S. Court in North Carolina authorized the Internal Revenue Service to serve John Doe summonses on Bank of America, Charles Schwab, and TD Bank in an order that was unsealed on April 30. The John Doe summonses seek information about persons residing in Finland that have Bank of America, Charles Schwab, or TD Bank payment cards linked to bank accounts located outside of Finland. The summonses are known as “John Doe” summonses because the IRS does not know the identity of the persons under investigation.
The U.S. petitioned the U.S. District Court for the Western District of North Carolina to authorize the summons at the request of the Finnish government under the tax treaty between Finland and the U.S. The treaty permits the two countries to cooperate in exchanging information that is required to carry out each country’s tax laws. The IRS summons requests the identities of Finnish residents who have payment cards linked to bank accounts located outside of Finland so that the so that the Finnish tax authority can determine if those persons have complied with Finnish tax laws. Finland has told the IRS that, in circumstances where the payment cards are used only at ATMs or in other transactions where authorization is by PIN code, and the cardholder need not identify himself or herself to the merchant, the cardholders cannot be identified from sources in Finland.
The filing does not allege that Bank of America, Charles Schwab, or TD Bank violated any U.S. or Finnish laws with respect to these accounts.
Finnish Foreign Payment Project
The request is part of a foreign payment project that Finnish Tax Administration (FTA) . The FTA uses information on the use of payment cards issued by foreign financial institutions to identify non-compliant Finnish taxpayers. Prior FTA investigations of approximately 120 to 150 Finnish taxpayers who used foreign payment cards in a similar way have resulted in high rates of tax non-compliance, as explained in the U.S. government’s memorandum in support of the petition. It indicates that it is likely that the John Does sought by the summons are Finnish residents who are failing to report these foreign accounts and associated income.
The court order in this case authorizing the enforcement action is part of ongoing international efforts by the U.S. and its treaty partners to stop persons from using foreign financial accounts to evade taxes. U.S. courts have previously approved John Doe summons allowing the IRS to identify individuals using offshore accounts to evade their U.S. obligations, and have also approved John Doe summons to be used to identify individuals using U.S. financial institutions or accounts to evade foreign tax obligations, such as those in the Netherlands and Norway.
The current matter also shows an increase in efforts by foreign tax authorities to bring request assistance from the IRS and directly bring enforcement actions in the U.S.
The current issue of the IELR will have additional discussion of the case.