Indians resident in the United States and holding offshore bank accounts in India and elsewhere via the Hong Kong and Shanghai Banking Corporation (HSBC) are likely to face questions from the U.S. federal tax authority on whether they have been evading taxes.
In a statement the U.S. Department of Justice (DoJ) said on Thursday that it was seeking an order from a federal court in San Francisco authorising IRS to request information from HSBC Bank USA, about the accounts of such Indian-Americans.
Requesting court permission to issue what is called a “John Doe” summons on HSBC the DoJ said that these orders would help the IRS obtain information about possible tax fraud by people whose identities were as yet unknown. However if approved, the summons would “direct HSBC USA to produce records identifying U.S. taxpayers with accounts at HSBC India, many of whom are believed by the government to have hidden their accounts from the IRS.”
It is possible that HSBC itself may be implicated in any potential lawsuits filed by the U.S. government, particularly as documents filed with the government’s petition, on January 26 2011 suggested that employees of HSBC assured one of their clients, Vaibhav Dahake of Somerset, New Jersey, “that accounts maintained in India would not be reported to the IRS.”
Mr. Dahake was said to already be indicted by a grand jury in Newark, New Jersey, on charges of conspiracy to defraud the U.S. by using undeclared accounts in the British Virgin Islands and at HSBC India to evade his income taxes.
According to the statement by the U.S. DoJ, in 2002 HSBC India opened a “representative office” at an HSBC USA office in New York City to enable “Non-Resident Indians” (NRIs) living in the U.S. to open accounts in India. “In 2007, HSBC India allegedly opened a second representative office at an HSBC USA office in Fremont, Calif., purportedly “to make banking transactions more convenient for the NRI community based in California,” the DoJ statement added.
While HSBC India reportedly closed those offices in June 2010, the government alleged that NRI clients could still operate their accounts at HSBC India from the U.S.
John DiCicco, Principal Deputy Assistant Attorney General for the Justice Department’s Tax Division, commented on the ongoing case, saying, “The DoJ is committed to ensuring that all U.S. taxpayers meet their obligations to declare and pay taxes on foreign bank accounts... The ability to hide accounts in foreign countries is rapidly dwindling.”
Under U.S. federal law U.S. taxpayers are required to pay federal income taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year, the DoJ said.
