NEW YORK (CNN/Money) -
The Justice Dept. and the Internal Revenue Service are nearing an agreement with American Express to turn over the names of its credit card customers who pay bills through offshore tax havens, a newspaper reported Friday.
The IRS, which declined to comment, is attempting to identify people who are cheating on their taxes by paying bills through offshore accounts in places such as the Bahamas and the Cayman Islands, the Wall Street Journal reported.
U.S. District Judge Adalberto Jordan granted an IRS request for the documents held by American Express (AXP: Research, Estimates) and MasterCard in October 2000.
According to the report, tax-avoidance drains $70 billion from federal revenue each year.
In this scenario, a taxpayer hires a lawyer to set up a phony corporation offshore, then deposits unreported income into the account. By buying items with a credit card and paying the bill through the offshore account, the money is not traceable.
Taxpayers are required to report the money placed in offshore accounts, and the interest gained.
Obtaining the records would allow IRS investigators to compare customers' purchases with taxes. Penalties could include back taxes and criminal charges, the Journal said.
MasterCard International spokeswoman Sharon Gamsin said her company also is negotiating with the IRS to release records, the report said.