'JOHN DOE' SUMMONS SERVED ON PAYPAL

25 April 2008

But does the issue involve online gambling at all?


Industry observers are speculating this week on whether a US Internal Revenue Service 'John Doe' summons on e-processing company PayPal might be connected with online gambling. But the consensus appears to be that since PayPal exited that sector of the US market some 7 years ago with a $10 million Department of Justice settlement, this is unlikely.

The news broke this week that PayPal, which still services gambling accounts outside North America, has been subpoenaed by the US Internal Revenue Service in the District Court for Northern California to produce financial records concerning the use of offshore credit cards.

The company has said that whilst it values the privacy of its clients, it feels obliged by US law to obey the subpoena and provide the information requested by the IRS by the deadline of April 29 this year.

The IRS court action is entitled: In The Matters of the Tax Liabilities of John Does, Case No. CV-05-04167-JW.

The civil rights pressure group Interactive Media and Entertainment Association (www.imega.org) has commented on the action, opining that it does not appear to be specifically related to online gambling.

iMega president Edward Leyden, says that despite the fact that the documents refer to the Isle of Man and Dominica, which have Internet gambling licensing regimes, among others the action does not appear to be targeted on the pastime.

"This appears to be part of a larger IRS investigation that commenced several years ago concerning tax issues involving Americans holding credit cards issued by banks located in places the Treasury Department considers to be potential 'tax havens'. While i-gaming concerns certainly may become caught up in this effort, this does not mean that Internet gaming in the primary target of the investigation," he said.

Leyden pointed out that in this sort of action, three tests must be met by the plaintiff before Internal Revenue Code Section 7609(f) which gives the IRS the authority to issue this type of information demand, can be met:

"The summons must relate to the investigation of a particular person or ascertainable group or class of persons.

"The Service must have a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with the tax laws.

"The information and identities sought to be obtained from summoned records must not be readily available from other sources."

Leyden added that if the IRS were to simply issue a third party summons for a named individual or group of individuals, it would, under IRS 7609(a), have to notify the person within three days so that the individual could contest the summons by seeking to have it quashed.

"With a 'John Doe' summons, the targets' opportunities to fight the summons are very limited. For that reason, a greater burden is placed on the IRS to show in a court of law that it is not engaged in a "fishing expedition."

Leyden concluded: "Cases such as this one show how delicate our rights to privacy really are, especially when we are online, and why we all need to be very diligent in fighting for them and for all of our 'digital civil rights'."

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