Banking & Financial Services Alert

Last week, the U.S. Department of Justice (DOJ) announced that it has undertaken several actions in furtherance of IRS summonses directed to major U.S. banks. These summonses are directed at supporting a European country’s European income tax investigation of hidden U.S. accounts which may be owned by that European country’s tax residents. The DOJ emphasized that these summonses were aimed exclusively against evasion of foreign taxes, and that there were no allegations that any U.S. taxes were involved. The DOJ announcement quoted an IRS official as stating “These summonses reflect our continuing efforts to work with our international partners on offshore tax evasion. . . Countries can help one another put an end to the global practice of evading taxation by hiding assets abroad.”

Treaty-based requests by the IRS concerning specifically identified individual European account holders in U.S. banks are not unknown. However, the DOJ announcement notes that DOJ obtained U.S. federal court orders approving issuance of “John Doe” group summonses to the U.S. banks. A “John Doe” group summons does not identify the individual owners of the U.S. accounts by name, but rather requires the U.S. bank to supply the names from a description of the suspicious U.S. account. The issuance of “John Doe” group summonses in aid of European requests for information on European-owned U.S. accounts owned by unidentified and unknown Europeans, even though limited to a narrowly circumscribed group of U.S. accounts with specific indicia of European tax evasion, as in this case, is highly unusual.

In summary, the DOJ announcement is noteworthy because it signals a desire of the U.S. government to direct its enforcement powers to U.S. banks in order to assist European countries in enforcing their own European tax obligations, and, in particular, to enforce against U.S. banks properly circumscribed “John Doe” group requests from European countries.

The “John Doe” group summonses order granted with respect to Bank of America, Capital One, Citibank, and M&T Bank cited in the DOJ announcement, can be viewed at the Department of Justice official webpage.

As the caption of that order indicates, these summonses deal with European residents holding U.S. credit or debit cards issued through U.S. banks.

Future Implications
This week’s DOJ announcement may well be a prelude to even further obligations being imposed on Florida and other U.S. financial institutions to report to the IRS concerning their account holders who are foreign. This is the result of new, additional, commitments made by the U.S. Treasury Department and IRS, subject to obtaining approval from the U.S. Congress, to cooperate with foreign income tax initiatives now being undertaken by many European and other foreign countries.

Such U.S. Treasury and IRS actions in support of foreign income tax enforcement include: (1) signing treaties committing the IRS to gather from Florida and other U.S. financial institutions information on foreign account holders, based on requests from foreign governments concerning groups of accounts associated with a demonstrably high likelihood of foreign income tax evasion, even if the requesting foreign government is unable to name the specific foreign owners of those accounts; (2) signing the new multilateral Convention on Mutual Administrative Assistance in Tax Matters, already signed or ratified by more than 50 foreign countries, committing the IRS to cooperate with foreign income tax proceedings, such as by levying on Florida and other U.S. accounts of delinquent foreign taxpayers where local foreign collection efforts are unavailing; and (3) signing FATCA reciprocal intergovernmental agreements, committing the U.S. Treasury to require Florida and other U.S. financial institutions to supply data on foreign-owned accounts to the IRS, which, even without having received any foreign group request under the applicable U.S. income tax treaty, would then automatically annually turn this account data over to the foreign signatory country.

Moreover, recent internal income tax measures by some foreign countries have included requiring their residents to annually report their ownership in Florida and other U.S. accounts. This reporting of U.S. accounts is enforced by foreign tax authorities through additional examiners, and an extended statute of limitations and harsh penalties for non-compliance.

Recent European income tax initiatives, and their U.S. implications, in the specific context of Spain, are discussed in the attached law review article published this week, co-authored by Alan S. Lederman of Gunster’s Tax practice group and by a Spanish tax attorney at a European law school. This article is particularly timely in view of last week’s DOJ announcement emphasizing the IRS’s desire to cooperate with European tax investigations.
To read a complete copy of this law review article: “Spain Looks Abroad to Reduce Deficit at Home“.


This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.

Established in 1925, Gunster is one of Florida’s oldest and largest full-service law firms. The firm’s clients include international, national and local businesses, institutions, local governments and prominent individuals. Gunster maintains its presence in Florida with offices in Fort Lauderdale, Jacksonville, Miami, Orlando, Palm Beach, Stuart, Tallahassee, Tampa, The Florida Keys, Vero Beach and its headquarters in West Palm Beach. Gunster is home to more than 150 attorneys and 200 committed support staff, providing counsel to clients through 18 practice groups including banking & financial services; business litigation; construction; corporate; environmental & land use; government affairs; health care; immigration; international; labor & employment; leisure & resorts; private wealth services; probate, trust & guardianship litigation; professional malpractice; real estate; securities and corporate governance; tax; and technology & entrepreneurial companies. Gunster is ranked among the National Law Journal’s list of the 350 largest law firms.


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