Large Firm Skills
With Small Firm Service

IRS to target wealthy taxpayers in Panama tax fraud probe

On Behalf of | Aug 2, 2021 | Tax Controversies |

The IRS is working to identify wealthy Americans who used a law firm called Panama Offshore Legal Services to “create or control foreign assets and entities” in an effort to evade taxation. The Justice Department issued a statement last week saying that it had obtained a court order that will allow the department or the IRS to demand financial information from banks and couriers about their U.S.-based clients who used the firm.

According to Accounting Today, the IRS will use that court order to demand information about electronic fund transfers and courier deliveries between the firm and its U.S. clients. A federal judge authorized the IRS to issue summonses to a variety of entities for this purpose, including:

  • The Federal Reserve Bank of New York
  • The Clearing House Payments Co.
  • HSBC Bank USA NA
  • Citibank NA
  • Wells Fargo NA
  • Bank of America NA
  • FedEx Corp.
  • United Parcel Service, Inc.
  • DHL Express

According to a May 4 declaration by an IRS agent, Panama Offshore Legal Services (POLS) used HSBC, Bank of America, Citibank and Wells Fargo for U.S. correspondent accounts and the banks cleared dollar-denominated transactions for POLS.

The federal court’s order will require the companies to produce any information they have about potential violations of U.S. tax law, even though the IRS may not yet know the identities of the taxpayers. In other words, the court authorized “John Doe” summonses against U.S. taxpayers.

Panama allegedly provides strict banking secrecy

POLS, which operates alongside a number of related entities, was the registered agent for over 2,500 Panamanian entities, according to the IRS. The firm offered clients the chance to use Panamanian entities to hide the ownership of their assets, to bank in Panama and to invest in Panamanian real estate. The IRS says the firm offered secrecy, too, and the ability to care for loved ones “free from probate, inheritance taxes, and other legal and tax problems.”

In its advertising, POLS touted Panama as the country with “the strongest bank-secrecy laws on earth.”

According to the IRS, one man from Westchester County, New York, wired $1.28 million to a POLS-agented Panamanian entity. That man has since pled guilty to a fraud scheme that involved biodiesel fuel credits.

The court order in question in this case was issued in the Southern District of New York. In other federal courts, the agency is seeking the authority to send summonses to Western Union Financial Services, Inc., and MoneyGram International, Inc.

The penalties for tax evasion are harsh, especially when offshore entities are used to hide money. If you have done business with Panama Offshore Legal Services, you should contact a tax attorney right away.