The John Doe Summons is authorized by Internal Revenue Code Section 7609(f) and comes from the IRS. It is issued when the name of an offending taxpayer is unknown, and is not required to name anyone. This type of IRS summons became famous during 2008 when it was employed to penetrate secrecy laws in Switzerland. As a result, UBS divulged the names of roughly 4,500 Swiss bank accounts owners to the IRS. The modern day heavy enforcement of foreign bank account reporting regulations resulted from that single John Doe summons. It also gave birth to the Internal Revenue Service’s Offshore Voluntary Disclosure Program (OVDP), as well as a multitude of criminal tax fraud prosecutions and criminal prosecutions for willful non-filing Foreign Bank Account Reports (FBARs) on Form TDF 90-22.1
Some clients of Wegelin & Co., Switzerland’s oldest bank who had not been filing FBARs for their accounts there. A John Doe summons helped the IRS to procure their information in 2013.
Unlike other IRS summons which the IRS needs no approval to issue, a federal district court judge must approve a John Doe Summons before the IRS can issue it. The judge’s approval is based on these criteria:
The summons must be connected to the investigation of a specific person or a specific group or class of persons,
there exists reasonable basis tobelievie that such person or group or class of persons may fail or may have failed to comply with any provision of the tax law, and
information desired from the examining the records or testimony (and the identity of the person or persons with respect to whose liability the summons is issued) cannot be obtained from other sources.
A John Doe summons was also used by the IRS in the case of Belize Bank. In the fall of 2015, the IRS convinced a Miami federal district court judge to approve a summons to Belize Bank to get information about some account holders who were U.S. persons. The end goal is to use the Belize Bank records won by way of the John Doe summons to target those account holders who failed to report income as the law requires or to file FBARs.
Interestingly the issuing of a John Doe summons by the IRS changes the statute of limitations. Usually the statute of limitations on the IRS assessing additional tax is six years in situations when a person didn’t report foreign income according to tax laws. Nonetheless, if a John Doe summons isn’t resolved within a 6 month period, an extension is available to the IRS. Internal Revenue Code Section 7609(e)(2) states that the statute of limitations can be extended for a time period beginning on the date which is 6 months after the service date on the summons and ending on the date when the summons is finally resolved.
In the UBS case, the statute of limitations was suspended for almost two more years. You can learn how the IRS calculated that extension by clicking here.
In light of this provision, if you are a target of a John Doe summons, you may think the statute of limitations has expired. Alas, you may be under pressure for longer than you first believed.
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