Similar to the Justice Department’s recent demand from the four biggest Internet search outfits to hand over information on surfer habits, the IRS recently won a court order to have San Jose, Calif.-based PayPal hand over information on its more than 100 million clients who have allegedly used debit/credit cards to stash away unreported income in offshore tax havens such as the Cayman Islands, Curacao, Belize, the Bahamas, Western Samoa and about 20 more countries.
At issue with the IRS is that PayPal’s business model facilitates online money transfers to accounts outside of U.S. jurisdiction. Last year, the company reported an estimated $27 million was wire transferred out of the U.S.
The IRS first asked the court in October for access to PayPal records in its effort to crack open the offshore banking racket – on the heels of getting help from major credit card companies.
The IRS probe includes obtaining offshore bank account numbers, credit card numbers and PayPal account numbers in order to execute its search for alleged tax evaders. At present the order from the IRS is on an ask-only basis, but according to a report from the Associated Press, a firmer IRS demand for information on tax evaders is imminent.
The records probe extends from 1999-2004.
A PayPal spokesperson said that her company is considering the terms of the order and is reviewing the potential privacy threat to PayPal clients.
In a recent report on offshore banking, the IRS described it as a growing epidemic that is used by millions of American citizens to avoid paying income tax, or at least the majority of taxes owed. Offshore banking also is widely used by U.S. corporations to lower estimated taxes and remain competitive with other companies.
A typical transaction via an offshore account would include depositing a sum of money in an offshore account through a payment processor like PayPal and then withdrawing it using a credit card such as American Express, MasterCard or Visa.
After disallowing payment processing for adult companies several years ago, PayPal recently cracked down on processing for gambling sites and began imposing fines against both industries when its services are used for those types of transactions.