US: IRS Rooting Out Offshore Tax Evasion With ‘John Doe’ Subpoenas

The IRS has long investigated taxpayers who evade federal tax obligations by concealing taxable income in offshore tax havens or jurisdictions that provide for financial secrecy. Historically, the agency has used two methods to locate such taxpayers, their assets, and their income: Voluntary disclosure programs and “John Doe” summonses to banks throughout the world.

Recently, the IRS launched a new strategy: issuing “John Doe” summonses to overseas trust companies and their related entities and vendors to obtain names and contact information for taxpayers who are clients of the trust companies.

Once the IRS identifies these taxpayers, they can expect civil—and in some cases, criminal—investigations of their tax returns, going back years.

‘Trident’ Effect
US taxpayers generally must file income tax returns each year reporting their income from all worldwide sources, as well as their ownership interests in certain foreign assets. For example, taxpayers who have financial interests in, or signature authority over, foreign financial accounts must disclose this on their income tax returns.

Certain taxpayers are also required to report their financial interests in foreign accounts on a Report of Foreign Bank and Financial Accounts, or FBAR. Taxpayers must report certain transactions with foreign persons or trusts, and their ownership of or control over foreign corporations.

But taxpayers that want to evade their tax obligations sometimes conceal unreported taxable income in accounts in offshore no-tax, low-tax, or financial secrecy jurisdictions. They can rely on offshore service providers to create foreign entities to conceal their income and their beneficial ownership of assets.

The IRS has obtained court orders in recent months allowing it to issue John Doe summonses on TT (USA) Holdings Inc., Trident Corporate Services Inc., Trident Fund Services Inc., Trident Trust Company (South Dakota) Inc., and Nevis Services Ltd.—each being members of a multinational group of affiliated companies operating as “Trident Trust”—as well as other third party financial service companies, banks, and courier services that may have information about Trident Trust’s US clients.

The agency isn’t investigating Trident Trust or its affiliate entities. Instead, it’s using the summonses to identify taxpayers who have hidden assets overseas, failed to report some or all their worldwide income to the IRS, engaged in transactions with foreign persons or trusts, and have ownership of or control over foreign corporations. Without information from Trident Trust, the IRS can’t summon those taxpayers directly.

Anecdotally, the volume of offshore foreign reporting case investigations by the IRS appears to have decreased. But the John Doe summonses issued to Trident Trust indicates that the IRS is ready, willing, and able to raise the stakes to root out those taxpayers still using offshore strategies to evade their tax requirements.

Taxpayers with unreported overseas accounts and assets need to be aware of several implications of the John Doe summonses issued to Trident Trust.

Continued and increased scrutiny of foreign financial accounts and assets. The IRS is actively using John Doe summonses to gather information, indicating that it’s closely monitoring foreign financial services providers. This likely will lead to a broader crackdown on offshore tax evasion schemes, targeting individuals who may have used these services to conceal assets or income.

Potential legal consequences. When the IRS identifies taxpayers who have used foreign service providers to avoid taxes, they could face severe legal and financial consequences, including penalties, back taxes, and even criminal prosecution for tax evasion.

Global tax enforcement impact. These John Doe summonses signal a broader trend of increasing international cooperation and enforcement of tax laws. The IRS’s focus on offshore tax evasion and use of tools such as John Doe summonses could encourage other nations to adopt similar strategies, strengthening global tax compliance efforts.

Incentive to voluntarily disclose. Using John Doe summonses provides an incentive to taxpayers to come forward and disclose their foreign accounts and assets. Those that do may benefit from reduced penalties, while those discovered through investigations such as Trident Trust may face harsher penalties.

DOGE Impact
Tax advisers may also wonder if the Trump administration’s Department of Government Efficiency will have any impact on these types of investigations. Two weeks ago, before the administration began large-scale termination of government employees, it appeared that DOGE would have limited impact on these John Doe summons and related investigations.

But the large-scale deputization of IRS criminal investigators to the border to handle immigration matters; senior level firings and resignations within the Department of Justice; termination of probationary employees in the IRS; and the generalized oversight, integration, and elimination of employees in agencies that investigate and regulate high-net-worth and high-income taxpayers indicates that assumption may be incorrect.

The confirmation of a new FBI director adds to the uncetainty of what impact, if any DOGE and Kash Patel will have on employment levels, policy goals, and investigatory focus within the FBI.

Local US Attorneys depend on IRS and FBI employees for their investigations. If those employees aren’t assigned to overseas tax investigations, or are no longer employed, local US Attorneys won’t have the resources to continue these investigations. While DOGE isn’t embedded as much in local offices outside of Washington and New York, that could change at a moment’s notice.

However, as John Doe investigations show success, they will produce tax and restitution payments that may help fund other goals of the Trump administration. To the extent that trend continues, and local US attorney’s offices have successful investigations, DOGE may have minimal impact on the prosecutions.

But to the extent these investigations impact supporters of and donors to the administration, recent weeks have shown that success may be a relative term—such success may not be the type that the administration approves.

Future weeks and months will provide taxpayers with more information on DOGE’s impact on these overseas tax investigations. But it is clear that, overall, DOGE’s impact on the FBI, the IRS, and other regulatory agencies indicates there will be some impact. The full extent of it is yet unknown.