IRS

Justice seeks court OK for IRS to view HSBC data

AP News
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Posted: Apr 07, 2011 5:07 PM
Justice seeks court OK for IRS to view HSBC data

The Justice Department on Thursday asked a federal court in San Francisco to authorize the Internal Revenue Service to request information from HSBC Bank USA about U.S. residents who may be using accounts at the bank's Indian counterpart to evade federal income taxes.

If the court approves the request, the IRS will serve HSBC with a so-called "John Doe" summons that instructs the bank to turn over records identifying U.S. taxpayers with accounts at HSBC India.

Like its name implies, the IRS uses a John Doe summons to get information about possible tax fraud by people whose identities are not known.

The government believes many people banking with HSBC India have hidden accounts from the IRS.

The Justice Department request follows a case involving a New Jersey man who was indicted in January on accusations he used undeclared accounts in the British Virgin Islands and at HSBC India to evade income taxes.

Documents filed with the court petition cite the case against Vaibhav Dahake of Somerset, N.J., and state that employees of HSBC Holdings PLC, the bank's British parent, and its affiliates operating in the United States assured Dahake that accounts maintained in India would not be reported to the IRS.

The government also said HSBC's website states that in 2002 HSBC India opened an office at an HSBC USA office in New York to enable "non-resident Indians" living in the U.S. to open accounts in India. A second office was opened in Fremont, Calif., in 2007.

The Justice Department said that although HSBC India closed those offices last year, clients may still access their accounts from the U.S. Individuals told IRS investigators that bank representatives said they could invest in accounts at HSBC India without paying U.S. income tax on interest earned, and that HSBC would not report income earned on such accounts to the IRS.

"The ability to hide accounts in foreign countries is rapidly dwindling," John A. DiCicco, principal deputy assistant attorney general for the Justice Department's Tax Division, said in a release.

Federal law requires U.S. taxpayers to pay income taxes on all income earned worldwide and to report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year.

Shares of HSBC Holdings rose 68 cents to close Thursday at $54.58.