PayPal, the internet money-transfer arm of eBay, is to disclose the identity of customers who use the service to evade paying US taxes.

The Internal Revenue Service (IRS) is demanding records of customers using Paypal through offshore accounts in all tax havens, including Jersey, Guernsey, Isle of Man, Gibraltar and other UK dependencies.
According to the IRS, PayPal’s services have proved very attractive to tax evaders and the problem is growing. Customers can buy goods from eBay and many other shopping websites, pay for them from untaxed income held offshore and get the goods sent to their home address.

Tax authorities are also concerned that PayPal can be used to “launder” untaxed money between an individual’s offshore and domestic accounts.

Founded in 1998, PayPal has 76 million accounts and is available in many parts of the world. It now has more account holders than American Express, and eBay’s 2005 second-quarter figures celebrated a 49 per cent increase in the value of payments made through PayPal, to a record annual total of $6.5bn (£3.7bn).

The IRS has asked a federal court for permission to serve a “John Doe” summons on PayPal as part of a clampdown on tax evasion using offshore credit and debit cards. The IRS petition says: “The records requested in the summons will identify the holders of bank accounts at, or payment cards issued by banks in, the listed jurisdictions.”

It follows successful IRS applications to file similar summonses on MasterCard, American Express and Visa as part of its investigation of offshore tax evasion. The IRS says “over $40bn in federal tax revenue is lost every year due to the use of credit cards linked to accounts held in foreign tax havens”.

Posted: 11|6|05 at 11:44 am. Filed under: US News.