U.S. District Judge Vernon S. Broderick recently signed an order in Manhattan federal court authorizing the IRS to issue summonses requiring Federal Express Corporation a/k/a FedEx Express (“FedEx Express”); FedEx Ground Package System, Inc., a/k/a FedEx Ground (“FedEx Ground”); DHL Express (“DHL”); United Parcel Service, Inc. (“UPS”); Western Union Financial Services, Inc. (“Western Union”); the Federal Reserve Bank of New York (the “FRBNY”); Clearing House Payments Company LLC (“Clearing House”); and HSBC Bank USA, National Association (“HSBC USA”), to produce information about U.S. individuals who may be evading or have evaded federal taxes by using the services of SOVEREIGN MANAGEMENT & LEGAL, LTD. (“Sovereign”), to establish, maintain, or conceal foreign accounts, assets, and entities from the years 2005 through 2013. Specifically, utilizing Sovereign’s services to establish, maintain, operate, or control any foreign financial account or other assets; any foreign corporation, company, trust, foundation or other legal entity; or any foreign or domestic financial account.
Sovereign is a multi-jurisdictional offshore services provider that offers clients, among other things, the formation and administration of anonymous corporations and foundations in Panama as well as offshore entities. Related services provided by Sovereign include the maintenance and operation of offshore structures, mail forwarding, the availability of virtual offices, re-invoicing, and the provision of professional managers who appoint themselves directors of the client’s entity while the client maintains ultimate control over the assets.
During the IRS’s investigation of Sovereign’s conduct, one client, making a voluntary disclosure of tax non-compliance to avoid prosecution, reported that Sovereign helped the taxpayer form an anonymous corporation in Panama that the taxpayer used to control assets without appearing to own them. Sovereign uses Federal Express, UPS, and DHL to correspond with U.S. clients, and Western Union to transmit funds to and from clients in the U.S. In addition, the IRS learned that the wire services operated by the FRBNY and Clearing House, and the U.S. correspondent bank accounts that HSBC USA holds for Sovereign’s banks in Panama and Hong Kong, are likely to have records of financial transactions between Sovereign and its clients in the U.S. By obtaining information from these entities through John Doe summonses, the IRS expects to be able to identify Sovereign’s U.S. clients who may be avoiding or evading taxes.
Federal law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50 percent of the amount in the account at the time of the violation. If you were or are a client of Sovereign or an entity providing services like Sovereign, your name is probably already on the IRS radar and you will not be able to take advantage of the Voluntary Disclosure program. However, you can still take advantages of alternative and strategies to become current with the IRS before your file is forwarded on to the Department of Justice, definitely an Agency you do not want to have as your opponent. Please call us if you have any further concerns and/or question on your particular situation.
AUTHOR: MICHAEL B. NELSON, ESQ.