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US: Credit Card Processor Asked for Offshore Data

by Lynnley BrowningNew York Times
April 15th, 2009

The federal government is widening its investigation of offshore tax evasion to include services sold by the First Data Corporation, a large processor of credit card transactions.

As part of the inquiry, the Internal Revenue Service asked a Federal District Court in Denver on Wednesday to order First Data to turn over account information on scores of merchants that sell or provide offshore services, such as financial transactions processing.

The summons, if approved by a federal judge, would compel First Data to identify American clients who, through credit cards, debit cards and other financial processing arrangements, “may have diverted unreported income offshore or received unreported income from undisclosed offshore sources or have taken improper deductions or credits or have failed to withhold tax on certain payments made offshore,” all going back to 2002.

In court papers, the I.R.S. said that First Data had actively marketed and sold offshore services to American merchants, typically investment and Internet-commerce advisory shops, who in turn used the service to help their clients hide taxable income.

A First Data spokeswoman, Christa Goeson, said that the company executives could not comment “since we haven’t seen the summons.”

“However, as a leading payments processor, First Data receives and duly responds to thousands of forms of legal process each year,” Ms. Goeson said. “We have an excellent track record of cooperating with all government agencies and expect to continue our practice of complying with all lawful requests for information with due regard for the confidentiality of our customers’ data.”

The I.R.S. is focusing on a First Data subsidiary formerly known as Cardservice International and now called First Data Independent Sales. In 2002, the unit, which works with 3,200 independent sales offices and agents to sell and provide financial processing services, began marketing offshore processing services with First Atlantic Commerce, an e-commerce company in Bermuda, according to court documents.

Through the arrangement, the First Data unit, according to a declaration by an I.R.S. agent, Daniel Reeves, that accompanied the summons request, “clearly markets offshore merchant account services to U.S. merchants as a means of tax avoidance by advertising its services on the Web sites of foreign promoters of abusive offshore tax schemes and products.”

The declaration said that the daily processing and settling of credit card transactions were performed by another First Data subsidiary, First Data Merchant Services.

Mr. Reeves is the lead investigator of the I.R.S.’s efforts to examine offshore credit card abuses.

In past years, the I.R.S. had issued broad summonses to eBay, Mastercard, Visa International and dozens of others seeking to force them to turn over names of clients with credit cards linked to offshore accounts. But the agency has had limited success in luring in Americans with such accounts, and is now broadening its focus to include merchants.



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