Page 4 - Meet John Doe Summonses

TAX CONTROVERSY CORNER
After advising the client on the potential suspension of the statutes of limitations, the practitioner should consider the various methods for the client to correct any past non- compliance before the IRS or DOJ obtains the information and begins a civil audit or criminal investigation.
e IRS currently has two procedures available for taxpayers who have not properly reported o shore assets, the 2014 O shore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedure.28 If the client’s past noncompliance only involved domestic issues, but was due to fraud, or may be perceived by the government as being due to fraud, the client can make a domestic voluntary disclosure to the IRS.29 e OVDP and the domestic voluntary disclosure practice require that the taxpayer’s submission be timely,30 i.e., that the IRS is not already aware of the taxpayer’s noncompliance or that there is not an open audit or investigation regarding
the taxpayer.31 e service of a John Doe summons itself will not cause a taxpayer to be ineligible for a voluntary disclosure, but once the government obtains information pursuant to the John Doe Summons relating to a particular taxpayer, that taxpayer will no longer be eligible.32 As stated by the IRS, “a taxpayer concerned that a party subject to a John Doe summons ... will provide information about him to the Service should apply to make a voluntary disclosure as soon as possible.”33
ese methods for correcting past noncompliance and avoiding penalties and/or prosecution have various pros and cons, and whether they are the right choice for any client depends on the client’s particular facts. A practitio- ner with a client who may be the subject of a John Doe summons should quickly analyze those facts and advise the client about the various methods to self-correct before it is too late.
ENDNOTES
1 The IRS and the Department of Justice have successfully used John Doe summonses in their efforts at increased offshore tax enforcement and compliance. Some recent examples are John Doe summonses issued to collect infor- mation about U.S. account holders at banks in Switzerland, India, the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta and the United Kingdom. See, e.g., Jay R. Nana- vati & Justin A. Thornton, DOJ and IRS Use “Car- rot ‘n Stick” to Enforce Global Tax Laws, 29 Crim. Just. 4 (2014); see also Bruce Zagaris, U.S. Judges Authorize IRS To Issue John Doe Summons for Records of U.S. Taxpayer Accounts at Zurcher Kantonalbank and Bank of N.T. Butter eld & Sons. Limited and Af liates, 30 Int’l Enforce- ment L. Rep. 47 (Feb. 2014); Bruce Zagaris, U.S. District Court Issues John Doe Summons Against CIBC First Caribbean International Bank Ltd., 29 Int’l Enforcement L. Rep. 256 (July 2013); Bruce Zagaris, U.S. District Court Authorizes John Doe Summons for UBS with Respect to Wegelin Correspondent Account, 29 Int’l Enforcement L. Rep. 87 (Apr. 2013).
2 See Department of Justice News Release, Court Authorizes Service of John Doe Summons Seek- ing the Identities of Taxpayers Who Have Used Debit Cards in Furtherance of Tax Evasion (Jan. 25, 2017), available online at www.justice.gov/ opa/pr/court-authorizes-service-john-doe- summons-seeking-identities-us-taxpayers- who-have-used-debit.
3 See Department of Justice News Release, Court Authorizes IRS To Issue Summonses For Records Relating To U.S. Taxpayers Who Used Services Of Sovereign Management & Legal, Ltd., To Conceal Offshore Accounts, Assets, Or Entities (Dec. 19, 2014), available online at www.justice. gov/usao-sdny/pr/court-authorizes-irs-issue- summonses-records-relating-us-taxpayers- who-used-services.
4 See Notice 2014-21, 2014-16 IRB 938 (IRS Virtual Currency Guidance) (Apr. 14, 2014).
5 See Department of Justice News Release, Court Authorizes Service of John Doe Summons Seek- ing the Identities of U.S. Taxpayers Who Have Used Virtual Currency (Nov. 30, 2016), available online at www.justice.gov/opa/pr/court-au- thorizes-service-john-doe-summons-seeking- identities-us-taxpayers-who-have-used.
6 Code Sec. 7609(f ) ( ush language).
7 M. Clarke, CA-11, 2016-1 ustc ¶50,219, 816 F3d
1310, 1313 (quoting Code Sec. 6201(a)).
8 M. Powell, SCt, 64-2 ustc ¶9858, 379 US 48, 58,
85 SCt 248. 9 Id.
10 Code Sec. 7609(h)(2); Tiffany Fine Arts, Inc., SCt, 85-1 ustc ¶9117, 469 US 310, 317, 105 SCt 725.
11 R.V. Bisceglia, SCt, 75-1 ustc ¶9247, 420 US 141,
150, 95 SCt 915.
12 Matter of Does, CA-2, 82-2 ustc ¶9565, 688 F2d
144, 148 (1982) (quoting H.R. Rep. No. 94-68
at 311).
13 Tiffany Fine Arts, SCt, 469 US 310, 320, 85-1 ustc
¶9117 (citing S. Rep. No. 94-938, at 373; H.R. Rep.
No. 94-658, at 311).
14 Id., at 321.
15 Id., at 311.
16 Id., at 322.
17 Id., at 324.
18 See N. Gertner, CA-9, 95-2 ustc ¶50,499, 65
F3d 963, 970–972 (“[i]f the IRS does not in fact intend to investigate a named party, then the IRS cannot obtain the data it seeks without observing the mandate of section 7609(f ).”).
19 Code Sec. 7609(h)(2); Tiffany Fine Arts, SCt, 469 US at 317.
20 Matter of Does, 688 F2d at 148–149.
21 Id., at 148.
22 Id., at 149–150 (“But it does not follow that
denying the taxpayer the right to challenge the section 7609(f ) criteria in the enforcement
proceedings precludes him from relying on the four Powell standards and claiming bad faith or abuse of court process. All these substantive rights continue to be available.”).
23 See In the Matter of the Tax Liabilities of John Does, No. 3:16-cv-06658 (N.D. Cal.), Document #9, “Motion to Intervene, to Quash Summons, or for Protective Order, or for an Order Sched- uling an Evidentiary Hearing and Permitting Limited Discovery.”
24 See also Reg. §301.7609-5(d)(1).
25 Reg. §301.7609-5(d)(2) (emphasis added); see
also Espolon Ltd. ex rel. Sligo (200) Co., Inc., FedCl, 2007-2 ustc ¶50,752, 78 FedCl 738, 760 (assessment timely where the statute of limita- tions was suspended after party served with John Doe summons did not fully comply within six months).
26 Code Sec. 7609(i)(4). The notice must provide the following information: “(i) A John Doe summons was served on the summoned party seeking records that may be relevant to the person’s tax liability; (ii) The date on which the summons was served; (iii) The tax period(s) to which the sum- mons relates; (iv) Six months have passed since service of the summons and the summoned party’s response to the summons has not been nally resolved; (v) The periods of limitations under section 6501 (relating to assessment and collection) and section 6531 (relating to criminal prosecution), have been suspended; and (vi) The date on which suspension of the periods of limitations under sections 6501 and 6531 began.” Reg. §301.7609-3(d)(2).
27 Reg. §301.7609-3(d)(3).
28 A full discussion of these programs is outside
of the scope of this column, but you can learn more at www.irs.gov/uac/2012-offshore- voluntary-disclosure-program and www.irs. gov/individuals/international-taxpayers/ streamlined- ling-compliance-procedures.
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