IRS Targets Records of Credit Card Companies

WASHINGTON —  The Internal Revenue Service’s recent success in gaining access to the accounts of tax evaders who use American Express and MasterCard to spend money banked in offshore accounts may lead to requests for similar information from other credit card companies, tax experts said.

The tax agency is finishing court-ordered negotiations with American Express Co. and MasterCard International Inc. to learn identifying information such as passport and driver’s license numbers of customers with accounts in the Bahamas, Cayman Islands, and Antigua and Barbuda.

Once those negotiations are finished, the IRS could go after accounts held by other credit card companies, such as Visa International Inc. and Citigroup’s Diners Club International, said former IRS officials.

“It would be reasonable to conclude that the IRS is not only focusing on just two credit card companies,” said Margaret Milner Richardson, an IRS commissioner during the Clinton administration who practices tax law at Ernst & Young. The IRS didn’t say why it went after only American Express and MasterCard in the first place.

IRS spokesman Frank Keith would not say what action the agency would take next. “The IRS will continue to be working to identify taxpayers who evade taxes through the use of offshore trusts,” he said.

Americans who use offshore accounts at banks such as Suisse Security Bank & Trust in Nassau, the Bahamas, and Barrington Bank in St. John’s, Antigua, cost the U.S. Treasury $70 billion to $300 billion in lost revenue annually, witnesses told the Senate Finance Committee last year.

The IRS wants access to credit cards linked to those accounts to track big-ticket purchases by Americans, hoping to detect unreported income and find Americans who aren’t filing tax returns.

The IRS considers all income by U.S. citizens to be taxable, and assets in foreign banks must be declared on tax returns. Offshore accounts are widely advertised as a way to shelter income in countries with tough bank secrecy laws.

“The use of offshore bank accounts and offshore entities to facilitate tax evasion is a massive problem for the United States,” said an affidavit filed in a U.S. District Court case that forced American Express and MasterCard to turn over customer account information to the IRS. The affidavit was submitted by Jack Blum, a former Senate investigator and expert on money laundering who’s now a partner in the Washington law firm of Lobel, Novins & Lamont.

The IRS says thousands of Americans use credit and debit cards to spend their money in offshore bank accounts without leaving a paper trail in the U.S.

The government in October 2000 convinced a judge in Miami that American Express and MasterCard must provide documents for transactions in 1998-1999 because the companies process all offshore card transactions in the U.S.

Since the judge’s ruling, the tax collection agency has been negotiating with both companies on the release of the records. At issue is how American Express and MasterCard can honor privacy they guarantee their customers while complying with a judge’s order.