With the IRS under increasing pressure to close the ‘tax gap,’ federal investigators are trying to obtain information on U.S. businesses that use offshore merchant accounts as a mechanism to shield income from tax authorities. In a Colorado federal court case, the judge has granted the IRS permission to obtain information from a credit card processor concerning U.S. businesses that have arranged to have credit card processing payments deposited in offshore accounts since 2002. In support of the investigation, the IRS has issued a ‘John Does’ summons, which according to IRS agent Daniel Reeves seeks to obtain information on “United States taxpayers who operate businesses, either online or from a physical location, and have some or all of their gross income from credit, debit or other payment card sales deposited directly into a bank account maintained outside the United States.”
In March, 2009 the IRS made an amnesty offer to income tax evaders with offshore accounts to do the right thing and settle up. The stiffest civil penalty for failing to report offshore income is 50 percent of the offshore account balance for each year the disclosure is not made. Taxpayers taking the amnesty deal would only have to pay 20 percent of the accounts highest balance for the past six years, and only 5 percent if the account was inherited and properly taxed initially. The deal also requires taxpayers to amend tax returns for the last six years and pay any tax and penalties owed. This news should be of concern to any U.S. businesses that use offshore merchant accounts for tax avoidance. Under the IRS ‘voluntary disclosure’ program, it is unlikely that a U.S. taxpayer would face any criminal action as long as the proper disclosures and payments are made before the IRS opens an investigation or audit procedure.
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Merchant accounts are marketed to merchants by two basic methods: either directly by the processor or sponsoring bank, or by an authorized agent for the bank and additionally directly registered with both Visa and MasterCard.
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