Trident Trust Investigation: Implications for Clients and Advisors
Highlights
- The U.S. Department of Justice (DOJ) and IRS have issued a John Doe summons targeting Trident Trust and related companies in three federal court cases.
- The development has significant implications for clients of Trident Trust between 2014 and 2023, as well as for the advisors facilitating those services.
- This Holland & Knight alert provides background on the cases, as well as important considerations and next steps for clients and advisors.
The U.S. Department of Justice (DOJ) and the IRS have issued a John Doe summons targeting Trident Trust and related companies in three federal court cases. In a recent press release, the DOJ stated they are not alleging that any of the Trident Trust entities engaged in wrongdoing. Rather, the IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by individuals whose identities are currently unknown. This development has significant implications for clients of Trident Trust between 2014 and 2023, as well as for the advisors facilitating those services.
Broad Scope May Include Non-U.S. Persons
A John Doe summons is used when prosecutors identify a class of potential targets, as opposed to specific individuals. In the first of three cases, the summons compels Trident Trust's New York affiliate, Nevis Services Limited (aka Morning Star), to disclose records from 2014 to 2023 involving "U.S. taxpayers." Also included in the summons are several banks and other vendors doing business with Trident Trust. "U.S. taxpayer" normally means a U.S. citizen, a lawful permanent resident (green card holder) and certain individuals spending sufficient time in the U.S. However, in this case, the court approved a more expansive definition of U.S. taxpayer to include anyone with a U.S. address or phone number. This broad scope could mean that many foreign clients and their advisors will also face scrutiny because, for example, they gave Trident Trust the address of their U.S. vacation home or a "care of" address at their U.S. advisor's office, or a cellphone number they use when traveling in the U.S.
Parallel Investigations in New York, South Dakota and Georgia
In addition to the New York summons, the DOJ has just unsealed a related action in South Dakota, where Trident Trust provides U.S. trust services. In the trust context, the "U.S. taxpayer" covered by the summons might be the beneficiary of the trust, such as, for example, the U.S. tax resident spouse or descendant of a foreign settlor. The estate of a U.S. taxpayer can also be considered a U.S. taxpayer, and anyone benefiting from the estate's assets could also be exposed. Even if everyone involved in the trust is foreign, including trust advisors and trust protectors, the mere fact that a U.S. address or phone number was used could make that trust and all emails and records pertaining to its formation and ongoing administration subject to the summons. A third action is pending in Georgia, which is headquarters to Trident Trust's Latin American client liaison team.
Immediate Steps for Trident Trust Connected Clients and Advisors
- Evaluate Compliance: International tax laws are extremely complex, constantly changing and difficult to follow, even with the best intentions and the help of a competent U.S. tax lawyer retained to provide compliant tax planning advice. Anyone unsure whether they have undisclosed assets or unreported income, including if they had any connection with Trident Trust from 2014 to 2023, should immediately reassess their compliance carefully and confidentially. Advisors must also review their roles in facilitating these structures to mitigate risks, as they may be called as witnesses and in some cases become subjects or targets of the investigation. Failure to report and pay all income and failure to disclose certain economic activities outside the U.S. can result in onerous fines if not resolved prior to detection, even if it was just an honest mistake. On the other hand, intentional non-compliance can result in even higher penalties, up to five years of incarceration, and even deportation in the case of non-citizens.
- Consider Voluntary Disclosure: The IRS continues to encourage taxpayers to come forward voluntarily through various "amnesty" programs, each with different costs, benefits and qualifications. However, once the IRS obtains information about a specific person in response to a summons (or from any other source), it can be too late to avoid more severe tax and reporting penalties and prosecution. Time is of the essence.
- Seek Experienced Legal Counsel: Communications with accountants, trust companies and financial advisors generally are not protected by the attorney-client privilege. If there is any possibility that the IRS might determine there was non-compliance after reviewing Trident Trust's files and their correspondence with clients, banks and other advisors, consider talking with an experienced, independent, U.S. international tax attorney first to determine the proper course of action.
For more information or questions, please contact the author.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.