Tax dodgers may lose friend in PayPal

Tax dodgers may lose friend in PayPal
Court: IRS can ask company about clients with offshore accounts

WASHINGTON (AP) -- The Internal Revenue Service won approval from a federal court to ask PayPal to turn over information about people who might be evading taxes by hiding income in other countries, officials said Tuesday.

A federal court in San Jose, California, gave the IRS permission to ask PayPal Inc. -- a company that enables online money transfers -- for account information for American taxpayers who have bank accounts, credit cards or debit cards issued by financial institutions in more than 30 countries reputed to be tax havens.

PayPal spokeswoman Amanda Pires said the company just received the summons.

"We're still evaluating our options," she said. "The privacy of our customers' information is something we take really seriously."

PayPal enables individuals and businesses around the globe to send and receive money online. In 2005, users moved $27.5 billion through the money transmitter. The company, owned by eBay Inc., has 100 million account holders globally.

The request for information is an outgrowth of an IRS effort, begun several years ago, to trace money that American taxpayers hold offshore to avoid paying taxes. The IRS said many of those taxpayers access their money through credit and debit cards. The tax collectors have already obtained information from some credit card companies, merchants and payment processors.

"PayPal is another one of the mechanisms by which money stashed overseas might be spent," Eileen O'Connor, assistant attorney general for the Justice Department Tax Division, told reporters.

In some cases, the IRS obtained credit card numbers but could not identify the cardholder. The IRS said PayPal might be able to lead the tax agency to those individuals.

The IRS also hopes PayPal can help them identify currently unknown taxpayers' and their payment cards, as well as offshore bank accounts, that might be evidence of tax evasion.

The request covers transactions occurring from 1999 through 2004.

A 2003 amnesty program netted $170 million in taxes and penalties from income hidden offshore. More than 1,300 taxpayers avoided criminal prosecution by coming forward and revealing the person or company that marketed the offshore arrangement.