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October 2, 2015


Belize Next on IRS Radar

The IRS has served John Doe summonses to a number of banks in Belize, seeking information about American account holders, as the U.S. federal government continues its onslaught against offshore tax evasion. Long known as a tax haven, Belize has been a popular destination for wealthy individuals seeking to avoid taxes by holding assets offshore.

A John Doe Summons is a summons that seeks information about taxpayers whose identities are unknown to the U.S. government. It was a John Doe Summons issued to UBS in 2008 that pierced the veil of secrecy related to Swiss bank accounts. A federal judge in the Southern District of Florida approved this new summons related to financial institutions in Belize, which seeks documents related any U.S. taxpayers who, at any time during 2006-2014, directly or indirectly had interests in or signature authority over accounts maintained at or managed by Belize Bank International Limited, Belize Bank Limited, or Belize Corporate Services Limited, as well as their predecessors, subsidiaries, and affiliates.

Taxpayers with accounts at financial institutions should come forward as soon as possible and take advantage of one of the ongoing voluntary disclosure initiatives. Once the U.S. authorities receive information about undisclosed offshore accounts, the taxpayer is no longer eligible to make a voluntary disclosure and faces potentially draconian civil penalties, along with the risk of criminal prosecution.

U.S. taxpayers with undeclared offshore accounts usually have two options. The first is to participate in the Offshore Voluntary Disclosure Program. This program guarantees immunity from criminal prosecution, but the requirements are more stringent. The other option is the Streamlined Filing Compliance Procedures, announced just last year. The requirements under this program are much less onerous, and the penalty amount is significantly lower. However, since this program does not offer immunity from prosecution, taxpayers should carefully consult with an attorney prior to deciding which option to choose.

Going forward, we expect to see the U.S. authorities issue John Doe Summonses to financial institutions in more countries. More than 100 countries, including Belize, have also reached agreements with the U.S. government to implement the Foreign Account Tax Compliance Act (FATCA). Under these agreements, foreign financial institutions will exchange information with the IRS about American account holders on an annual basis. Taxpayers who do not voluntarily comply can expect to be audited in the near future, which could result in massive civil penalties and the potential of criminal prosecution.

Tax Evasion