November 2019 Foodman CPAs & Advisors website

An individual that provides information to an attorney may normally assume that the information provided to the attorney will be kept confidential under the attorney-client privilege.  That said, according to the Internal Revenue Manual (IRM), circumstances exist when attorney client privilege protection may be circumvented by an IRS weapon known as a “John Doe” summons. 

The “John Doe” summons

A “John Doe” (JD) summons is an investigative tool available to IRS through the approval of a federal court.  IRS uses it as an investigative tool when casting a net to locate the names of US Taxpayers otherwise “unknowable” to IRS.  It is called “John Doe” because the subject Taxpayer(s) has not been identified.  But, IRS has reason to believe that such Taxpayer(s) is violating the law. 

According to the IRM 25.5.7 Special Procedures for John Doe Summonses, “the Service may serve a John Doe summons pursuant to section 7609(f) after a court proceeding in which the Service establishes that:

  1. the summons relates to the investigation of a particular person or ascertainable group or class of persons;
  2. there is a reasonable basis for believing that the person, group, or class may fail or may have failed to comply with any internal revenue provision; and
  3. the information sought from the examination of records and testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources”. 

Indirectly Avoiding attorney-client privilege protections

IRS uses information gained from its JD summons to pursue non-compliant Taxpayers with undeclared accounts, as well as the banks, bankers and attorneys suspected of helping clients to hide their assets overseas.  On May 15, 2019, a US District Judge in Texas, concluded that the IRS could enforce its JD summons  to gather a Law Firm’s client names.  The IRS had audited a client of the Law Firm (Taylor Lohmeyer) and had determined that that the client (a US Taxpayer) had used the Law Firm to “set up foreign accounts, foreign trusts, and foreign corporations to avoid paying U.S. taxes for which he was liable.”  As a result, the IRS wanted to obtain the names of other Taylor Lohmeyer Law Firm clients that used the services of the Law Firm to “create and maintain foreign bank accounts and foreign entities that may have been used to conceal taxable income in foreign countries”.   

IRS remains committed to its priority efforts to stop offshore tax evasion

It pursues cases in all jurisdictions of the world.  Over the years, numerous individuals have been identified as evading US taxes by hiding liquid assets in offshore banks, brokerage accounts or nominee entities; using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

Don’t be a Victim of your Own Making

IRS works closely with the Department of Justice to prosecute tax evasion cases. The use of a “John Doe” summons is one of many weapons in the IRS arsenal.  Taxpayers should not succumb to an advertisement that guarantees anonymity.   IRS may gain access to information and eventually discover the identity of those that don’t want to be identified.