IRS and DOJ Aim to Identify Stanford Clients

The Justice Department has filed papers seeking a federal court order to authorize the IRS to serve a “John Doe summons” on Ralph Janvey, the court-appointed receiver of accused fraudster R. Allen Stanford’s investment companies, in an effort to identify Stanford’s clients.

The John Doe summons requires Janvey to identify U.S. taxpayers who hold foreign accounts at Stanford’s Antigua-based financial companies, including Stanford Group Company, Stanford Trust Company and Stanford International Bank.

On Feb. 16, 2009, the Securities and Exchange Commission accused Stanford of a fraudulent $7 billion investment scheme. As a result, the federal district court in Dallas appointed Janvey to take possession and control of Stanford’s books and records, as well as those of his related entities. On June 19, 2009, a federal grand jury indicted Stanford for mail, wire and securities fraud.

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According to the papers filed in court by Justice Department Tax Division attorneys, the IRS does not know the identities nor the financial investment information of U.S. taxpayers with the offshore accounts, and the IRS could not readily acquire it other than through a John Doe summons. The IRS also used John Doe summonses to ferret out the identities of U.S.-based clients of the Swiss bank UBS.

According to the declaration of IRS Revenue Agent Daniel Reeves filed in support of the petition, the IRS has evidence volunteered from a U.S. taxpayer that account statements and Form 1099s from Stanford-controlled entities did not include interest or income generated from Stanford bank accounts or certificates of deposit.

According to the Reeves declaration, evidence available to the IRS suggests that many of the persons in the John Doe class may have been under-reporting income, evading income taxes or otherwise violating U.S. tax laws. The aggregate amount of the resulting taxes that should have been reported and paid to the U.S. Treasury is unknown.

With information from the John Doe summons, the IRS hopes to inspect each taxpayer's income tax return to determine if there are any understatements or misstatements of income.

In addition, the IRS can determine if Stanford’s U.S. taxpayer clients filed "Reports of Foreign Bank and Financial Accounts," also known as FBARs. Any U.S. taxpayer who has a financial interest in or signature or other authority over any foreign financial account (including bank, securities, or other types of financial accounts) must file an FBAR if the aggregate value of the financial accounts exceeds $10,000 at any time during a calendar year.

According to the Reeves declaration, a large number of FBARs may not have been filed by U.S. owners of the offshore Stanford certificates of deposit.