Oh, oh — another tax article that RG readers tell me they hate because, as we Bermudians love to say, “it’s got nothin’ to do with me”.

I will unequivocally state right now that United States tax compliance has everything to do with us.

On Wednesday, November 13, 2013, The Royal Gazette reported that the US Department of Justice in conjunction with its revenue collecting (and tax fraud enforcement arm) the US Internal Revenue Service issued a ‘John Doe summons’ to two of our banks, Butterfield Bank and its correspondent bank, HSBC UK, along with a number of other US banks and a Swiss bank, ZKB (Zurcher Kantonalbank). This summons by US tax enforcement agencies is placing US taxpayers (who may be innocent non-compliers or possible tax evaders) publicly and figuratively onto Hamilton docks. John Doe summonses are known informally as “fishing expeditions”, since the exercise seeks to obtain information about possible tax fraud by individuals whose identities are unknown.

Justice Department Assistant Attorney General Keneally stated. “These cases once again demonstrate the department’s resolve to uncover and identify taxpayers who tried to hide money overseas as a way to avoid federal taxes. These John Doe summonses will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their US tax obligations. US taxpayers still holding accounts who have not come clean should come forward and do the right thing before it’s too late.”

IRS Acting Commissioner Werfel stated that “international issues remain a major focus for the IRS, and we are continuing our efforts to fight tax evaders who use offshore accounts to skirt the law,” said IRS Acting. “These John Doe summonses for correspondent account records show our determination to pursue evaders using offshore accounts, even if the person hiding money overseas chooses a bank that has no offices on US soil.”

The Department of Justice press release further disclosed that US taxpayers, through the IRS Offshore Voluntary Disclosure Programmes have identified 371 accounts at ZKB and 81 accounts at Butterfield Bank that were previously undisclosed to US taxing authorities. IRS OVD programs and initiatives enable US taxpayers to resolve their tax liabilities and minimise their chances of criminal prosecution by voluntarily disclosing previously undisclosed foreign accounts and income.

Still, you may think why should this be of interest, you are a Bermudian — you don’t have any ties to the United States, or other countries. Are you very sure of that? We individuals with families, businesses, trusts, corporations, all resident here need to understand that the global environment that all countries operate within now involves mutual cooperation to stamp out tax evasion. If unsuspecting individuals, in this case US citizens, LPR (long-term permanent residents aka green card holders) unaware of these complex tax matters, those innocent tax non-compliers are caught in the net, it matters not to government enforcement agencies, but it will to us.

The US Department of Justice enforcement summonses that Bermuda is obligated to uphold may adversely affect us indirectly — since every single time another major tax fraudster is exposed, our Island’s reputation is opened up to scrutiny, and suspicion. We have a responsibility and a stake in the tax game, whether we like it or not.

The US enforcement action is extremely important, not just for Bermuda residents with US connections, but for those residents with connections to other OECD countries. They, too, are ramping up their revenue collection toolbox to expose citizens who are considered resident within the country have hidden assets offshore. The OECD countries (and more) are on a serious determined relentless mission — to recover untaxed assets and enforce accountability upon its citizens / residents.

This is serious business, readers. US FATCA reporting by foreign financial institutions is also looming in the near future. It is paramount now that US persons resident in Bermuda, and elsewhere, need to be very clear in reviewing their financial matters, that they have complied with all US reporting, filing and tax obligations. I encourage you to read the FATCA blog link attached with particular note of the paragraph on making changes or closing accounts.

With permission of the author, Virginia La Torre Jeker, JD, see her blog, “Let’s Talk About: US Tax”. Angloinfo the global expat network. http://blogs.angloinfo.com/us-tax/2013/10/30/fatca-fear-and-terror-caused-by-america-fatca-express-leaves-the-station-coming-soon-to-your-hometown/

Next article. We will review a number of situational US tax trap scenarios that arise for individuals and families who may be considered subject to US tax.

Source: The United States Department of Justice, Office of Public Affairs, November 12, 2013. Court Authorises IRS to Issue Summonses for Records Relating to US Taxpayers with Offshore Bank Accounts. http://www.justice.gov/opa/pr/2013/November/13-tax-1210.html

Virginia La Torre Jeker JD, is based in Dubai — the only US tax lawyer in the Gulf — is a member of the New York Bar since 1984 and also admitted to practice before the United States Tax Court. She has 30 years of experience specialising in US and international tax planning as well as international commercial transactions. Based in Dubai since 2001, her prior experience for 15 years was in Hong Kong as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies.

Martha Harris Myron JP CPA PFS CFP is a Bermudian journalist and a cross border financial planning specialist focused on offshore financial perspectives for international citizens living, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle: United States, Canada, United Kingdom, Europe, and the island of Bermuda, the premier international finance centre. President of Pondstraddler? Life™ Consultancy. International consultant on cross border financial planning: Presentations, publications & workshops to finance professionals & businesses.

www.pondstraddler.com. Inquiries to info@pondstraddler.com