IRS Uses John Doe Summons to Pursue Offshore Tax Evasion and Challenges Attorney-Client Privilege

The IRS and Department of Justice are determined to combat offshore tax evasion using powerful investigative tools like the John Doe Summons. Nevis Services Limited, a Trident Trust Group affiliate, has been served a John Doe Summons by the IRS to obtain information about US taxpayers who may have used the Group's services to conceal financial accounts and assets. The IRS can also serve summonses on financial institutions and courier services to identify US taxpayers who have sent or received money or documents to or from the Trident Trust Group. The John Doe Summons is a potent weapon against tax evaders whose identities are unknown to the IRS and must meet specific criteria to be issued and enforced.

The attorney-client privilege, which preserves the confidentiality of communications between lawyers and their clients, cannot bar the use of an IRS John Doe Summons. This privilege ensures that attorneys cannot disclose their clients' communications even in court proceedings or when requested by the IRS. However, when a John Doe Summons is issued to a law firm, it creates tension within the parameters of the privilege. In 2019, the IRS used a John Doe Summons to obtain information about clients who used a specific law firm.

While the confidentiality of attorney-client communications is crucial for clients to share information openly with their attorney, a John Doe Summons issued to a law firm creates tension within the privilege. In a recent case, the IRS used a John Doe Summons to obtain information about clients who used a trusts and estates planning law firm to establish offshore structures. Although the law firm did not have to turn over client memos, notes, and files, it was still required to identify the relevant clients, who were audited by the IRS. This case highlights the IRS' ability to pierce professional confidentiality claims when investigating potential tax evasion through offshore structures.