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IRS Widens Its Hunt of Offshore Accounts

The Internal Revenue Service is seeking bank records for U.S. taxpayers suspected of hiding accounts at a Caribbean lender, opening up a new front in efforts to combat offshore tax evasion.

The IRS said it is investigating whether taxpayers stashed money at Canadian Imperial Bank of Commerce‘s FirstCaribbean International Bank. Instead of pursuing foreign bank records directly, the IRS got court authorization to serve a “John Doe” summons on Wells Fargo & Co., where Barbados-based FirstCaribbean International Bank, or FCIB, maintained a U.S. account.

FCIB could use the Wells account, known as a correspondent account, to wire funds to other accounts in the U.S. and overseas, an IRS agent said in a court declaration. The agent said the Wells bank records will contain information needed to identify U.S. taxpayers with undisclosed accounts. The IRS is seeking account records from 2004 to 2012.

Observers said the move is a tactic tax authorities can use to track down taxpayers who use foreign banks like FCIB that may not be under U.S. jurisdiction.

“The IRS can do this time and time again without the need to build a criminal case against an institution,” said Daniel Reeves, a retired senior IRS official. Mr. Reeves led the agency’s civil offshore investigation into Swiss bank UBS AG,
which in 2009 agreed to turn over thousands of U.S. client account records to the IRS.

The IRS effort, made with help from the Justice Department, is the latest sign that U.S. tax enforcers are targeting hidden offshore accounts in countries other than Switzerland, which has been a focal point of attention to date.

“Our work here shows our resolve to pursue these cases in all parts of the world,” IRS acting Commissioner Steven T. Miller said in a statement.

A Wells Fargo spokesman said the bank “will review the summons and respond as legally required.”

FCIB said it was working with Wells on the matter. “It is our intention to cooperate with authorities in accordance with the respective laws of all jurisdictions involved,” the bank said.

Court filings indicated some information on FCIB’s alleged activities came from an IRS program allowing taxpayers to voluntarily confess about secret accounts.

Individuals accepted in the program, which levies stiff penalties but protects participants from criminal prosecution, have to provide detailed account information for IRS use in investigations.

The IRS said taxpayers making voluntary disclosures have reported the use of hidden accounts at hundreds of banks around the world.

Scott Michel, a lawyer with Caplin & Drysdale in Washington, said he expects the IRS would seek to serve more summonses in coming months, “aimed at a variety of banks around the world and their U.S. customers.”

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