DOJ and IRS Seek HSBC India Account Records

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The Justice Department said Thursday it is trying to get a court order that would allow the Internal Revenue Service to request bank account records from HSBC Bank’s India unit to help identify U.S. residents who are evading federal taxes.

The government filed a petition with the court to allow the IRS to serve what is known as a “John Doe” summons on the bank. The IRS uses a John Doe summons to obtain information about possible tax fraud by people whose identities are unknown. The IRS used a “John Doe” summons to pursue account information from UBS in Switzerland.

If approved, the John Doe summons would direct HSBC USA to produce records identifying U.S. taxpayers with accounts at HSBC India, many of whom are believed by the government to have hidden their accounts from the IRS.

According to documents filed with the government’s petition, on Jan. 26, 2011, a grand jury in Newark, N.J., indicted Vaibhav Dahake of Somerset, N.J., charging him with conspiracy to defraud the United States by using undeclared accounts in the British Virgin Islands and at HSBC India to evade his income taxes. According to those documents, employees of HSBC Holdings plc and its affiliates operating in the United States assured Dahake that accounts maintained in India would not be reported to the IRS.

The government alleges that, according to HSBC’s Web site, in 2002 HSBC India opened a “representative office” at an HSBC USA office in New York City to enable “Non-Resident Indians,” or NRIs, living in the United States to open accounts in India. In 2007, HSBC India allegedly opened a second representative office at an HSBC USA office in Fremont, Calif., purportedly “to make banking transactions more convenient for the NRI community based in California.”

Although HSBC India closed those offices in June 2010, the government alleges that NRI clients may still access their accounts at HSBC India from the United States. According to the petition documents, NRI clients have told IRS investigators that NRI representatives in the United States assured the clients that they could invest in accounts at HSBC India without paying U.S. income tax on interest earned on the accounts and that HSBC would not report the income earned on the HSBC India accounts to the IRS.

“The IRS continues to focus its attention on international tax evasion,” said IRS Commissioner Douglas Shulman in a statement. “This summons request is focused on obtaining more information to help us determine if additional actions are needed. As I’ve said all along, our international efforts are not about just one country or one bank—it’s about our wider effort to ensure compliance with the nation’s tax laws.”

Federal law requires U.S. taxpayers to pay federal income 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. A willful failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation.

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