Judge Backs IRS Access to Amex, MasterCard Accounts
Washington, Oct. 30 (Bloomberg) -- A federal judge ruled that the U.S. Internal Revenue Service may force two credit card companies to release information on their American customers who have accounts in three Caribbean countries.
U.S. District Court Judge Adalberto Jordan said the IRS demonstrated a ``reasonable basis'' that Americans with accounts in the Bahamas, Cayman Islands, and Antigua and Barbuda may be skirting U.S. tax laws.
The IRS filed a petition Oct. 19 against MasterCard International and American Express Travel Related Services Co. seeking information such as passport and drivers' license numbers and big-ticket purchases by customers with accounts in the three Caribbean countries in 1998 and 1999.
The companies can either comply with the IRS summons or file to quash the judge's order, which would prompt a hearing. Spokeswomen for both companies said they would decide what to do when they receive the summons.
``We understand the summons has been granted,'' said Judy Tenzer, spokeswoman for American Express. ``We will be communicating with the government to get a better idea of what they're looking for.''
Sharon Gamsin, MasterCard spokeswoman, said, ``As we have not yet seen any decision from the court or the summons that the IRS intends to issue, we cannot comment on it.''
She suggested, however, that the IRS probe might come up empty.
``We have a long history of cooperating with governmental agencies, recognizing as we process credit card transactions, we do not maintain any information that can personally identify an individual cardholder.''
But Jack Blum, a partner with Lobel, Novis & Lamont in Washington and a consultant to the IRS on the case, said the ruling ``strengthens the position of IRS in the event this thing is challenged. Clearly what the judge is saying is, `I've looked at this carefully and I think it's a reasonable request.'''
IRS Cracks Down
The IRS suspects that some wealthy people have set up trusts with offshore banks to hide income from the IRS, and they gain access to their money with credit, charge, and debit cards issued by banks in those countries.
The IRS considers all income by U.S. citizens to be taxable, and assets in foreign banks must be declared on tax returns. However the three countries have strict bank secrecy laws.
The IRS estimates there are thousands of accounts owned by Americans in these countries. Because American Express and MasterCard process all of the card transactions in the U.S., the IRS argued in court that it should have access to those records. The judge agreed.
``A reasonable basis exists for believing that such individuals may fail or may have failed to comply with provisions of the internal revenue laws,'' Jordan wrote.
IRS Rationale
The IRS chose MasterCard and American Express because it detects a ``high U.S. presence with cards issued in those countries,'' said John Buchanan, the IRS's national trust program manager.
The IRS intends to compare the information it obtains from MasterCard and American Express to information reported on individuals' tax returns for 1998 and 1999, the years covered in the summons.
If the IRS determines there is missing information on a tax return, or if no return was filed, the credit card holder could face back taxes, penalties, and interest. If the IRS can prove willful intent to defraud the government, criminal tax evasion charges can be filed, Buchanan said.
The Organization for Economic Cooperation and Development has identified 25 offshore financial centers as tax havens whose bank practices and rules are harmful to other countries. Among them are the Bahamas, the Cayman Islands, and Antigua and Barbuda. The Cayman Islands already has pledged to eliminate the practices deemed harmful by the organization rather than face economic sanctions.
Oct/30/2000 15:09 ET
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