Everyone has heard of “taking the fifth” in order to avoid making self-incriminating statements. However, there are exceptions to the Fifth Amendment right, and these exceptions require a person to provide self-incriminating bank documents to the IRS. For example, if a US taxpayer is under IRS audit for not reporting foreign bank accounts, and the IRS requests or subpoenas the foreign bank statements, “taking the fifth” would not be allowed. The taxpayer is required to hand the incriminating bank statements over to the IRS. The statements would then be used by IRS prosecutors to build a case against the taxpayer for tax fraud.
In US v. Chabot, the Third Circuit federal appeals court recently held that bank records fall within the “required records” exception to the Fifth Amendment, and therefore the bank records were subject to the IRS summons. The Bank Secrecy Act of 1970 (31 U.S.C. §5311), by which Congress required Americans to report their foreign accounts on the FBAR (Report of Foreign Bank and Financial Accounts) form, also requires Americans to keep the foreign bank records and maintain them for inspection. Thus, the incriminating bank statements sought by the IRS fell under the “required records” exception to the Fifth Amendment right against self-incrimination.
The Third Circuit now joins the Fourth, Fifth, Seventh and Eleventh Circuits in holding that foreign bank statements must be handed over to the IRS regardless of a Fifth Amendment claim of self-incrimination. This means that the DOJ and IRS can compel a taxpayer to reveal his or her offshore account records even if those records are self-incriminating. Prosecutors may then use those records to prove commission of tax crimes, including failure to file bank disclosures, filing false tax returns, tax evasion and tax fraud. Further, at least one U.S. district court has gone a step further and held that even if a taxpayer does not have the bank records, the taxpayer must affirmatively contact the foreign bank and request the records for the U.S. government.
Contact us for a confidential consultation if you have received a letter from the IRS, or a letter from a foreign bank.