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IRS Demands Paypal Records In Offshore Bank Account Crackdown

by Robert Lee, Tax-News.com, London

09 November 2005


Paypal, the online money transfer arm of the popular internet auction website eBay, may have to disclose the identities of some of its users to the United States Internal Revenue Service as part of a crackdown by the US authorities on tax evasion through offshore bank accounts.

According to the UK daily The Independent, the IRS is demanding the records of customers who are using Paypal accounts through "all offshore tax havens", including the UK dependent territories of Jersey, Guernsey, the Isle of Man and Gibraltar.

By accessing these records, the IRS is hoping to trace US residents who have undeclared income in offshore bank accounts, and who are using these funds to pay for goods online and have them shipped to their home address.

However, the IRS also has more serious concerns that Paypal can be used to "launder" untaxed money between an individual's domestic and offshore accounts.

"Because the elements necessary to transfer money require only two email addresses attached to two bank accounts and/or credit or debit cards, PayPal's structure not only allows persons with monies held in a foreign account to purchase goods and services, it also allows a person with assets secreted in a foreign country to repatriate them to their own domestic bank account without going through traditional banking methods such as a bank-initiated wire transfer," the IRS was quoted as explaining.

The IRS has asked a federal court permission to serve a "John Doe" summons on Paypal to gain access to the requested records.

Paypal currently has 76 million accounts worldwide, and in the second quarter, eBay recorded a 49% increase in the value of payments conducted through the intermediary.


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