IRS to search PayPal records for tax evaders
Federal court grants IRS permission to troll through PayPal customers' offshore credit card and bank records.
Under the order, issued by a U.S. District Court judge in San Jose, Calif., the IRS can view those records under certain conditions, the Justice Department announced this week. The IRS is seeking the access as part of its larger Offshore Credit Card Program, which aims to crack down on U.S. taxpayers who hold money offshore to avoid paying taxes.
The IRS is seeking information on U.S. taxpayers who have signature authority over bank and credit card accounts issued by, or through, financial institutions in more than 30 countries. The foreign countries, which range from Bermuda to Costa Rica to Singapore, have bank secrecy laws that allow account holders to refrain from disclosing income and assets that are subject to federal income taxes in the U.S.
PayPal currently operates in 10 of those countries, including Costa Rica, Singapore, Hong Kong, Switzerland, Malta and Luxemburg.
According to the order, the IRS can review the bank and credit card accounts of PayPal members, providing they meet three stipulations.
One is that a "reasonable basis" exists for believing a person may have failed to comply with IRS laws. A second requirement is the investigation relates to a particular person. Furthermore, the information being sought must not be easily obtained through other sources.
The Justice Department, on behalf of the IRS, filed its petition with the court in October. The court issued its order in February. A department representative said the law enforcement agency did not choose to disclose the court's actions until this week during a press briefing.
Online payment service PayPal, which is owned by eBay, has since received a summons order from the IRS and is reviewing its options, said Amanda Pires, a PayPal spokeswoman.
PayPal, which received the summons roughly two weeks ago, is reviewing whether to provide the information, appeal the court order, or take some other action, Pires said.
She noted the online payment service has had a long working relationship with regulators and that its privacy policy states it may release members' information if required by law.
The company, however, takes a strong view on protecting users' information, she added.
Over the past several years, the IRS has been turning to the Internet to crack down on tax evaders. In 2002, the IRS sought ways to track potential tax evaders by reviewing keywords in their search results.