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).
Read more at: Tax Times blog