The IRS defines a John Doe summons as a summons directed against a taxpayer who is under investigation but whose name is not known. Such a summons can also be directed against a group of unidentified taxpayers.
Why would the IRS seek to use such a procedure and when is it permitted? In this post, we will address these questions.
In recent years, IRS has used the procedure allowed by a John Doe summons to investigate alleged tax evasion in offshore accounts. In 2008, U.S. authorities successfully sought the names of U.S. taxpayers who had accounts with the Swiss banking giant UBS.
Last year, the IRS issued John Doe summonses to several prominent companies seeking information about U.S. taxpayers who used an entity called Sovereign Management & Legal Ltd. to handle their offshore accounts. A federal judge approved the request.
The use of these summonses has increased the pressure on taxpayers who may not be in compliance with offshore reporting requirements. For some taxpayers, this pressure may be a motivating factor in encouraging participation in the IRS's Offshore Voluntary Disclosure Program (OVDI).
But a John Doe summons is not supposed to be a fishing expedition. The IRS manual makes clear that multiple layers of approval are required within the agency before asking a federal judge to sign off on a summons against an unknown taxpayer. And the need for judicial approval provides another procedural check as well.
Clearly, however, it's important to have a knowledgeable tax lawyer to protect your interests if you have concerns about offshore compliance. You don't want to be caught flat-footed by a John Doe summons that leaves you exposed to tax penalties or other consequences.