IRS Can Ask for PayPal Account Info, Court Rules

SAN FRANCISCO -- The U.S. Internal Revenue Service can ask PayPal for information on some of its customers as part of an ongoing investigation into suspected tax evasion, a federal court ruled on Tuesday.

The online payment provider, a division of EBay, has just received a summons from IRS, according to PayPal spokeswoman Amanda Pires. The summons was approved by the U.S. District Court for the Northern District of California.

Pires would not say whether PayPal would hand over customer information. "A key part of our response will be the fact that PayPal takes the privacy of our customers very seriously," she said. PayPal isn't compelled to comply with the summons unless it becomes a court order, she said.

Targets of Investigation

PayPal believes the agency is seeking information on U.S. taxpayers who claimed they lived in foreign localities and set up PayPal accounts linked to foreign credit card or bank accounts in those places, Pires said. It is concerned with 35 places in particular, and a PayPal account can only be set up in 10 of them, she said. Those include Anguilla, Costa Rica, Cyprus, Channel Islands, Hong Kong, Isle of Man, Luxembourg, Malta, Singapore, and Switzerland.

PayPal customers can link a credit card, savings or checking account to a PayPal account and make or receive payments with that account. They can't set up a PayPal account for a U.S. address and link it to a foreign credit card or bank account, Pires said.

There are 100 million PayPal accounts worldwide, and transactions using the system in 2005 totaled $27.5 billion, Pires said.

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