The Department of Justice announced that it obtained an order authorizing the Internal Revenue Service to serve John Doe summonses to obtain records of U.S. taxpayers who have offshore accounts established by Sovereign Management & Legal LTD (SML), a Panamanian entity. This is part of the continuing effort of the IRS to discover U.S. citizens and residents with undisclosed offshore accounts. It is the government’s belief that debit cards issued by offshore banks are a means by which U.S. taxpayers gain access to offshore accounts in a secretive manner.


The IRS uses a John Doe summons to obtain information about possible violations of internal revenue laws by U.S. citizens and residents whose identities are not known. SML has no offices in the United States according to its website, but, apparently, the government believes that it can obtain records by subpoenaing an individual whom it believes has control over the offshore business. When the government obtains records, it can then prosecute the individuals who failed to properly report the offshore accounts and the income earned on those accounts.


The government obtained an order from the U.S. District Court in Bozeman, Montana authorizing a John Doe summons to be served upon Mr. Michael Behr of Bozeman, Montana. The John Doe summons seeks information about U.S. taxpayers who may hold offshore accounts during the years 2005 to 2016, established by SML. The government believes that offshore debit cards are used to commit tax evasion by allowing people to obtain access to the offshore funds. The information sought concerns issuance of debit cards known as “Sovereign Gold” cards, by SML. The Justice Department previously obtained a similar order from a Federal Court in New York authorizing the issuance of eight separate John Doe summonses on bank and other entities for information relating to SML and its customers in the United States.


It’s clear that the IRS and DOJ are zeroing in on SML and its customers with offshore accounts and assets. This presents a real risk that individuals dealing with SML may face significant civil and criminal penalties. The failure to report offshore financial accounts in which a person has signatory authority or an equitable interest is a felony and can result in long terms of incarceration.  In addition, a civil penalty of 50% of the amount in the offshore accounts can be imposed for each year that the required IRS form (FBAR) reporting the offshore accounts is not filed.


There is an alternative to facing criminal prosecution and huge monetary fines. This alternative is called the Offshore Voluntary Disclosure Program (OVDP). By entering and successfully completing the OVDP, the owner of an unreported offshore account avoids criminal prosecution and pays a reduced civil penalty. A person cannot enter the OVDP, however, after the Government, through its efforts in issuing the John Doe summonses, obtains evidence of the unreported offshore accounts.


The tracking of debit card activity is just another example of the Government’s tactics to learn of an individual’s financial dealings in its efforts to combat what it perceives to be tax evasion by hiding assets and income offshore.