A word to the wise for those who have Belizean bank credit cards but are
citizens of the US (or any other country who wants to see your
records)...from today's San Jose Mercury News:
Posted on Mon, Mar. 25, 2002
IRS targets charge cards issued by offshore banks
By Mark Schwanhausser
The Internal Revenue Service intensified its hunt Monday for the growing
number of Americans who evade taxes by using credit and debit cards issued
through banks in offshore nations.
In its most aggressive move to date, the agency filed a legal summons in San
Francisco court to acquire three years of spending records from Visa cards
issued through banks in more than 30 nations, including Switzerland, Hong
Kong and many Caribbean nations. Meanwhile, it announced that American
Express had agreed to provide two years' of such records.
``Simply put, the guarantee of secrecy associated with offshore banking is
evaporating,'' IRS Commissioner Charles Rossotti said in a statement.
Based on records already obtained from MasterCard, the IRS estimates 1
million to 2 million Americans hold credit and debit cards issued by
offshore banks. It is not against the law to hold such accounts, but only a
fraction of them have been reported on tax returns.
The IRS said it already has spotted suspects who have used their offshore
bank cards to pay for everything from groceries and gas to airline tickets,
jewelry, country club expenses, artwork -- even college tuition. The
suspects include executives of publicly held companies, business owners,
doctors, lawyers, investment professionals and tax-shelter promoters.
The IRS has recognized for decades that financial institutions in tax-haven
nations have pitched the benefits of banking in secret offshore accounts.
These strategies are promoted in books, on the Internet, at seminars, even
by arms of such reputable institutions as KPMG and Barclays.
For many tax cheats, the lure is that the United States has no way to trace
transactions made through these countries. As such, they have become popular
tools for an underground economy that hides from $150 billion to $600
billion in unreported income from IRS scrutiny, according to a 1985
But the IRS now is actively trying to pick the lock at the back door of
these offshore accounts. It is seeking the records to millions of
transactions processed through U.S. entities such as Visa International,
MasterCard and American Express.
MasterCard already has handed more than 1.7 million records funneled through
230,000 accounts in response to a summons filed in October 2000. American
Express agreed Monday to provide records for 1998 and 1999 for accounts
through Antigua and Barbuda, the Bahamas or the Cayman Islands.
But the IRS cast its biggest net Monday when it sought records from Visa
International of Foster City for transactions in 1999, 2000 and 2001 through
more than 30 tax-haven countries.
Visa spokeswoman Cheryl Heinonen said Visa couldn't detail how it would
respond to the IRS's summons because it had not seen the filing by late
Monday. ``To be honest, we're just waiting to see what they're asking us
for,'' she said.
The MasterCard case ``should have been a wake-up call,'' said Karen Hawkins,
a tax attorney with Taggart & Hawkins in Oakland. ``If it wasn't, this one
is. The new and improved IRS will be kinder and gentler if you're caught up
in the tax system out of confusion or because you don't understand the
rules, but it will be more tenacious and more aggressive with people abusing
In a court filing, the IRS said it is analyzing the MasterCard data in
several ways. It is comparing the data to IRS records and public information
to identify possible cheaters. In particular, the agency is running computer
checks to identify people who didn't file returns and to find taxpayers who
failed to acknowledge on Schedule B of their tax returns that they control
or have an interest in accounts in foreign countries.
``I would think someone who has offshore income and reports it should have
no great deal of worry, said Robert E. McKenzie, a tax attorney with
Arnstein & Lehr in Chicago. ``But those who didn't disclose it have a great
deal to worry about.''
Although there are many variations on these tax-evasion schemes, many follow
a relatively simple formula, the IRS says in court filings. Typically, a
U.S. taxpayer will find an offshore institution to set up and manage a
company based in the tax-haven nation. The taxpayer owns the shares, but the
institution acts as a ``nominee owner.'' As such, there is no disclosure for
U.S. tax purposes of income earned on these accounts.
Turning over such credit and debit card transactions is not a significant
privacy issue, McKenzie said. The government already demands countless
records of financial transactions, including wages, interest, dividends and
``Big Brother is already there for those of us who engage in U.S.
transactions,'' McKenzie said.''