Monthly Archives: August 2012

The Fifth Amendment privilege against self-incrimination does not apply to records that fall under the Required Records Doctrine, and a taxpayer who is the subject of a grand jury investigation into his use of offshore bank accounts cannot invoke the privilege to resist compliance with a subpoena seeking records kept pursuant to the Bank Secrecy Act, the U.S. Court of Appeals for the Seventh Circuit ruled Aug. 27 (In re Special February 2011-1 Grand Jury Subpoena DatedSeptember 12, 2011, 7th Cir., No. 11-3799, 8/27/12).

The records were sought as part of a grand jury's investigation of a taxpayer, known only as T.W., regarding his possible use of secret offshore bank accounts to avoid U.S. taxes.

The U.S. District Court for the Northern District of Illinois quashed the subpoena, agreeing with T.W. that the act of producing the records was testimonial and could result in T.W. incriminating himself.

The U.S. Court of Appeals for the Seventh Circuit joined the Ninth Circuit in holding that the required records exception to the Fifth Amendment privilege against self-incrimination applies to records of foreign bank accounts.

"Having determined that T.W.'s act of production privilege is not an obstacle to the Required Records Doctrine, we must decide whether the records sought under the subpoena fall within the Required Records Doctrine. In order for the Required Records Doctrine to apply, three requirements must be met: (1) the purposes of the United States inquiry must be essentially regulatory; (2) information is to be obtained by requiring the preservation of records of a kind which the regulated party has customarily kept; and (3) the records themselves must have assumed public aspects which render them at least analogous to public document. Grosso, 390 U.S. at 67–68 (emphasis added)."

"Recently, in a case nearly identical to this one, the Ninth Circuit held that records required under the Bank Secrecy Act fell within the Required Record Doctrine. In re M.H., 648 F.3d 1067 (9th Cir.2011) cert. denied, No. 11–1026, 2012 WL 553924 (U.S. June 25, 2012). In the Ninth Circuit's case, the court held that the witness could not resist a subpoena—identical to the one in this case—on Fifth Amendment grounds because the records demanded met the three requirements of the Required Records Doctrine. Id. We need not repeat the Ninth Circuit's thorough analysis, determining that records under the Bank Secrecy Act fall within the exception. It is enough that we find—and we do—that all three requirements of the Required Records Doctrine are met in this case."

Because the Required Records Doctrine is applicable, and the records sought in the subpoena fall within the doctrine, T.W. must comply with the subpoena.

This holding means that people who have foreign bank accounts can be forced to produce records that may prove that they have committed tax crimes, including failure to file FBARs, filing false tax returns, tax evasion, and conspiracy to defraud the U.S.

The Southern District of California, in the M.H.case, has gone a step further by holding that even if the account holder does not have the records, he or she must go to the bank and request the records for the government. These decisions, while valid precedents, are limited to the Seventh and Ninth Circuits.

For more information on the IRS' Offshore Enforcement Program, FBAR penalties, and the IRS’s Offshore Voluntary Disclosure Program (OVDP), contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

 

2) There is no legal requirement that a taxpayer be given the right to a CAP hearing for a proposed levy when a CDP hearing is requested at the same time. The IRS Office of Appeals ("Appeals") may decide for policy reasons not to provide a CAP hearing for a proposed levy when the taxpayer has requested a CDP hearing about the same proposed levy.

The taxpayer may make simultaneous requests for CAP and CDP review when the Service’s collection action is a NFTL filing or levy. Under CAP, Appeals’ administrative decision is final and the review is limited to the specific collection action proposed or taken. See IRM 8.24.1.1.1(9). Under CDP, Appeals’ determination is subject to judicial review and the scope of Appeals’ review is broader. See I.R.C. § 6330(c), (d); IRM 8.24.1.1.1(10).

For example, a taxpayer may, with certain exceptions, challenge the existence or amount of his or her underlying tax liability in a CDP hearing. See I.R.C. § 6330(c)(2)(B). A taxpayer may not challenge the amount of his or her liability in a CAP hearing. See IRM 5.1.9.4.1(2).

A taxpayer may request a CAP hearing at the same time as a CDP hearing request in order to receive an expedited review, generally five days. See IRM 8.24.1.1.1(9). CDP consideration by contrast will generally take longer.

The more expedited review provided by CAP may be desirable, for example, when a NFTL filing is interfering with a transaction or a levy causes the taxpayer economic hardship, and the taxpayer wants the NFTL withdrawn or the levy released as quickly as possible.

Consequently, many taxpayers will request CAP consideration at the same time as their request for a CDP hearing.

Acccording to the DOJ - A jury convicted Arvind Ahuja yesterday on federal tax charges stemming from his failure to disclose offshore bank accounts maintained in India and the Bailiwick of Jersey, the Justice Department and Internal Revenue Service (IRS) announced. Trial began on Aug. 15, 2012 before U.S. District Judge Charles N. Clevert, Jr., in Milwaukee. Ahuja, a prominent neurosurgeon in Milwaukee, was convicted of one count of filing a false 2009 individual income tax return and one count of failing to file a Report of Foreign Bank and Financial Accounts (FBAR).

According to the evidence presented at trial, Ahuja transferred millions of dollars from bank accounts in the United States to undeclared bank accounts located in India at HSBC bank. Ahuja invested the funds in these accounts in certificates of deposit, which earned more than $2.7 million in interest income during the years 2005 through 2009.

Ahuja also maintained an HSBC bank account in the Bailiwick of Jersey, a British Crown dependency located in the Channel Islands off the coast of Normandy, France. Ahuja used credit and debit cards linked to this account to pay personal expenses while on trips to London. Ahuja managed his offshore accounts with the assistance of bankers who worked at an HSBC India representative office in New York.

The evidence established that for tax year 2009, Ahuja filed a false tax return with the IRS that failed to report the interest income earned on his certificates of deposit at HSBC India, and failed to report he had signature authority over bank accounts located in India and Jersey. Ahuja also failed to file an FBAR for 2009 to report his offshore accounts to the IRS. Ahuja?s accountant testified that Ahuja never disclosed the existence of his offshore accounts during the preparation of his tax returns.
Sentencing is scheduled for Jan. 18, 2013.

"This prosecution reflects the continuing commitment of the United States Department of Justice, including my office and the Tax Division, to identify, investigate and prosecute individuals who fail to abide by well-established obligations to report and pay on their tax indebtedness", said James L. Santelle, U.S. Attorney for the Eastern District for Wisconsin.

This case is a warning to individuals who still think they can use offshore bank accounts to commit tax crimes, said John A. DiCicco, Principal Deputy Assistant Attorney General for the Justice Department's Tax Division.

If you have Unreported Foreign Bank Account Income, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).