IRS pursuing evidence of offshore tax dodges

Agency goes to court to obtain information from more than 40 firms

August 30, 2002|By BLOOMBERG NEWS

WASHINGTON - The Internal Revenue Service went to court yesterday to force more than 40 companies, including AOL Time Warner Inc., EBay Inc. and AMR Corp.'s American Airlines, to surrender information on customers the tax collector suspects are hiding income in offshore bank accounts.

The tax agency is seeking transaction records from airlines, hotels, rental car companies, retailers, Internet services, and shippers, including Delta Airlines Inc., Ramada Inc., Cendant Corp.'s Avis Rent a Car Inc., Amazon.com Inc., Microsoft Corp., the Gap, Inc., DHL Worldwide Express and AT&T Corp.

The companies aren't accused of any wrongdoing, the IRS said.

"In the weeks and months ahead, the IRS will work aggressively to pursue offshore credit-card holders who are not paying their fair share of taxes," IRS Commissioner Charles Rossotti said in a statement.

Yesterday's action marks the first attempt by the IRS to find out who is purchasing goods or services with credit cards linked to offshore accounts that may be used to evade U.S. taxes. The tax collector previously has forced credit card issuers Visa International Inc., MasterCard Inc. and American Express Co. to turn over information on cardholders in Antigua and Barbuda, the Bahamas and the Cayman Islands.

The Treasury loses between $20 billion and $40 billion in tax revenue each year because of offshore accounts, according to the General Accounting Office, the congressional auditing agency.

The summonses were filed in Atlanta; Chicago; Dallas; San Francisco; Seattle; Newark, N.J.; and Alexandria, Va.

Other companies affected include Southwest Airlines Co., Ford Motor Co.'s Hertz Corp., Mary Kay Corp., Sabre Holdings Corp., Yahoo Inc., AT&T Wireless Group and Hyatt Corp. Judges have approved similar requests by the IRS in the past.

The action was prompted by transaction information the tax agency got from MasterCard and American Express in the last year. Rossotti told a Senate panel in April that the probe has yielded 1.7 million MasterCard records for more than 230,000 accounts.

In some cases the IRS doesn't know the name or address of the cardholder. That is what the agency is seeking from the merchants, said Dale Hart, deputy commissioner in the agency's small business and self-employed division.

"We have no reason to expect that these companies would be anything less than cooperative," said Hart, who added that the IRS was seeking only limited information.

Some companies, such as AMR, said they were unaware of the summonses. Others pledged cooperation.

"We have been contacted, and it's something we would cooperate with," said AT&T spokesman Dan Lawler.

EBay spokesman Chris Donlay said that while the online auction company had not yet been notified, "we will cooperate fully."

According to an affidavit filed in court by IRS investigator Joseph West, the IRS has identified executives of publicly held companies, business owners, doctors, lawyers, investment professionals, tax shelter promoters, including the author of several books on offshore accounts, and other wealthy individuals who use credit and debit cards issued through offshore banks.

They are using the cards for living expenses such as gasoline, groceries, satellite television and cell phones.

Other cards have been used to pay for jewelry, country club expenses, art, college tuition and cars. Those under investigation face criminal and civil tax evasion charges, fines, and prison time, West wrote.

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