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Former Harvard Chemistry Chair indicted for failing to file FBAR and filing false tax returns

IRS Hard at Work Despite the Pandemic

Financial crimesIndividuals, who have failed to report their foreign financial accounts, may feel a sense of relief, in light of the corona virus and its effects on IRS investigations. Better think again!

The DOJ recently announced the superseding indictment of Dr. Charles Lieber, a former Chemistry chair at Harvard University for:

  • Failureto file Foreign Bank and Financial Accounts (FBAR) and;
  • Filing false federal income tax returns.

The initial indictment charges the former Harvard Chair withmaking false statements to federal authorities.

Lieber served as the principal investigator of the Lieber Research Group at Harvard University and received more than $15 million in federal research grants from 2008-2019. In addition, the charging document records that from 2012 until 2015,  Lieber served as a Strategic Scientist at Wuhan University of Technology (WUT) and thereafter as a Contract Participant in the Thousand Talents Plan (a program established by the Chinese government in 2008 for purposes of attracting global scholars to assist in Chinese development).

Subsequent indictment shows that Lieber entered into a three-year agreement with Thousand Talents that required WUT to pay Lieber a salary of up to $50k a month, living expenses totaling $150k and $1.5 million for purposes of establishing a research lab at WUT. The DOJ alleges that Lieber failed to report the income he received from WUT in 2013 and 2014 on his federal income tax return. Individual U.S. tax residents are required to report their income on a worldwide basis, irrespective of where the income is earned.

In addition to his failure to report the income Lieber received from WUT, the superseding indictment alleges that Lieber failed to file FBARS for 2014 and 2015 with respect to a foreign financial account he opened while in China in 2012. The account was opened to enable WUT and Thousand Talents to directly deposit Lieber’s salary and other payments. A U.S. person is required to file an FBAR (FinCen Form 114) if that person had a financial interest in or signatory authority over foreign financial accounts with an aggregated balance in excess of $10k during any time during the year. It is clear from the indictment that Lieber received more than $10k between salary and living expenses. Failing to report this amount as required by law under FBAR is a crime.

To avoid being indicted by IRS, it is crucial that U.S. persons in foreign countries to report all income earned for tax return purposes and file FBAR for any account(s) they have financial interest in/ signatory authority over with aggregate balance in excess of $10,000. 

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Courts Split on FBAR non-willful Penalty

Should FBAR non-willful penalty be charged per form or per account?

FBAR non willful penalty dilemmaThe Courts have recently addressed the issue of whether the FBAR Non-Willful penalty should be assessed per form rather than per account with conflicting results.  InUnited States v. Bittner, the U.S. District Court for the Eastern District Court held that the non-willful FBAR penalty should be assessed per form rather than per account.  The Bittner decision is in direct conflict with the holdings in United States v. Gardner, and United States v. Boyd.In two separate decisions, the District Court for the Central District of California held that the non-willful FBAR penalty should be assessed per account.

Logic dictates that because non-willful penalty provisionrelates to the failure to file an FBAR and not the failure to report a foreign financial account, the non-willful penalty should be limited per FBAR report rather than applying the penalty to each account. However, the Government does not interpret the statute in the same way.

In Bittner, the IRS argued that because the reasonable cause exception to the non-willful FBAR penalty references the “balance in the account” language, the reasonable cause exception should be applied on an account by account basis.

The Government further maintained in Bittner that the same reasoning should be applied in the assessment of the non-willful penalty. The Government further argued that, because the penalty for willful violations is assessed with reference to each account, the non-willful penalty should also be assessed with reference to each account.

The Court rejected both arguments. Bittner is on appeal and scheduled to be heard in September of 2020.  

Depending upon the appellate court’s decision, taxpayers could be subject to significant penalties. For example, a taxpayer who has ten accounts and failed to file FBARS for the past three years could be subject to a $300,000 or a $30,000 penalty.

Taxpayers, who have yet to come forward, should seriously consider using the Streamlined Procedures as the process for coming into compliance and limiting financial risk. In more serious cases, Taxpayers need to consider making a disclosure using the Voluntary Disclosure Practice Rules. In both cases, Taxpayers should consult with a knowledgeable and experienced tax attorney.

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Quiet Disclosure Guilty Plea

Florida man pleads guilty to tax evasion and hiding funds around the world

FBAR Quiet disclosuresIn April 2020, a Florida man pleaded guilty to tax evasion and the willful failure to file FBAR’s. What makes this case particularly interesting is that the taxpayer made use of a “quiet disclosure” rather than entering into the Offshore Voluntary Disclosure Program (OVDP). This is a classic case of greed on steroids.

Experienced tax attorneys will usually discourage their clients from making quiet disclosures. However, some practitioners may be tempted to recommend using a quiet disclosure to help close the deal with the client. An uninformed or greedy client will invariably opt for the least costly strategy. Unfortunately, these same practitioners routinely fail to provide the client with an explanation of the downside risks associated with making a quiet disclosure.

The following discussion is limited to the defendant’s foreign financial accounts, his failure to file FBAR’s and his unsuccessful attempt at making a quiet disclosure. If you interested in the tax evasion portion of the case you can click on the link hereand you will be linked to the Department of Justice, Tax Division, website.

Case background

–The taxpayer owned and operated a U.S. business that bought U.S.-made agricultural machinery and parts and sold them throughout the world.  The taxpayer failed to not only file business, personal and employment income tax returns but also failed to pay corporate, employment or individual income taxes. Although the taxpayer never received a salary, he certainly was living large. In addition to the business paying all of his personal expenses, the defendant was also able to siphon off significant amounts of cash, which he used for a variety of reasons. In total, the taxpayer failed to report more than $7.7 million in income, resulting in a total tax loss to the Government of over $2.7 million.

-From 2007 to 2011, the taxpayer transferred 5.8 million from the company’s bank accounts to foreign financial accounts. The taxpayer maintained these foreign financial accounts in Croatia, Germany, Serbia, and Switzerland from 2008 to 2015. Despite knowing that he had an obligation to report these accounts on FinCEN Form 114 (FBAR), the defendant kept these accounts secret in order to avoid IRS detection.

–In 2010, an account the taxpayer held at Credit Suisse in Zurich, Switzerland reached a year-end high value of $6,177,586. The taxpayer used the Credit Suisse account to fund the purchase of a $1,350,000 yacht and a $1,650,000 waterfront home in Florida.

–In 2015, Credit Suisse closed the taxpayer’s account in Switzerland and advised him to enter the IRS’s Offshore Voluntary Disclosure Program (OVDP). To provide some context, the OVDP was terminated in September of 2018 and replaced that same year with the Voluntary Disclosure Practice rules.

–The taxpayer failed to heed the Bank’s advice and elected not participate in the OVDP. The last iteration of the OVDP provided taxpayer’s with undeclared offshore accounts the opportunity to come clean in exchange for the prospect of avoiding criminal prosecution. Under the OVDP, participating taxpayers were required to:

  • File 8 years of delinquent or amended tax returns
  • File FBARS for 8 years.
  • Submit his or her returns and copies of the electronically filed FBAR, together with a penalty worksheet to the OVDP unit of the IRS.
  • Pay any outstanding income tax, together with a 20% accuracy penalty and interest.
  • Pay a one-time miscellaneous offshore penaltyequal to 27.5% of the highest aggregate account balance(s) in any one disclosure year.

In exchange for making these disclosures and paying all taxes, penalties and interest as well as the miscellaneous offshore penalty, the taxpayer and IRS would enter into a “Closing Agreement” (Form 906). A Closing Agreement effectively bars any additional claims by the IRS or the taxpayer for any of the years included in the disclosure period.

The taxpayer’s quiet disclosure consisted of filing several delinquent tax returns with the hope that the filings would fly under the radar, and the taxpayer would avoid paying income taxes, penalties and interest as well as the miscellaneous offshore penalty. Ironically, the taxpayer did not file any FBAR as part of his quiet disclosure.

Findings of the case

As it turns out, the tax returns filed by the defendant were materially false in several respects. First, the income tax returns disclosed only the taxpayer’s Credit Suisse account but failed to disclose his other foreign financial accounts. Second, the income tax returns submitted by the taxpayer failed to include the income the defendant earned from his company as well as the foreign source income earned from the taxpayer’s undisclosed foreign financial accounts.

Making a quiet disclosure, even in cases where the taxpayer files all FBAR’s in addition to his or her amended or delinquent income tax returns, is strong evidence of the taxpayer’s intent to prevent or hinder the IRS from detecting the existence of the taxpayer’s foreign financial accounts. It also demonstrates the taxpayer’s intent to avoid the assessment and payment of FBAR penalties.

Takeaway from the defendant’s guilty plea

If you make a quiet disclosure and are caught, there are significant financial consequences, even if you are fortunate enough to avoid criminal prosecution. The use of a quiet disclosure will invariably result in the assessment of the Willful FBAR Penalties which are substantial. Any hope of merely paying the Non-Willful FBAR penalty is out the window. In addition, if you are discovered, you will have to pay the outstanding tax, as well as the related penalties and interest on any unreported income. Among the IRS penalties, you could be subject to the 75% Civil Fraud Penalty.

Where criminal risk is minimal or non-existent, it may be possible to utilize the foreign or domestic streamlined procedures, thereby eliminating or limiting the FBAR penalty to a onetime 5% penalty.

While some taxpayers have been successful in avoiding detection by the IRS by using a quiet disclosure, you do not want to be the last person without a chair when the music stops. If you have undisclosed foreign financial accounts and foreign income, don’t let greed cloud your judgment. Nor should you make a decision based upon any potential savings in legal costs. Take the time to meet with an experienced and knowledgeable tax attorney to see what your options are. If any practitioner mentions the use of a quiet disclosure as a potential disclosure strategy, run like hell!

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Kenyans to Disclose Offshore Income and Assets or Face Stiff Penalties.

Folder tabs with focus on offshore account tab. Business concept image for illustration of tax evasion.Global Tax Initiatives and Kenya.

Kenya Revenue Authority (KRA) has thrown down the gauntlet, advising Kenyans who are working overseas that failed to take advantage of Kenya’s tax amnesty program that they will now face stiff penalties. This latest move is consistent with global enforcement initiatives including; the Common Reporting Standards (CRS) developed by the Organisation for Economic Development (OECD) to which Kenya is a signatory; and the reporting requirements enacted in the United States with respect to Foreign Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act (FATCA). These initiatives were designed to create greater cross border transparency, encourage voluntary tax and financial reporting compliance and to punish those who continue to try and game the system.

Failure of Kenyans to report their foreign source of income and assets erodes Kenya’s tax base and flies in the face of the notion that every individual should pay his or her fair share of tax.  Accordingly, Kenyans living in the U.S. need to know the rules of engagement both in the United States and in Kenya if they hope to stay on the right side of the law.

Kenya has a right to tax Kenyan residents on the diaspora income earned abroad. The term “residence” is defined under the Tax Act of 2004 as an individual who maintains a permanent home in Kenya or an individual who does not maintain a permanent resident in Kenya but is physically present in Kenya for more than 183 days.

U.S. Tax Residents are taxed on their world-wide income, but are permitted exclusion for foreign earned income and may also be able to take advantage of the foreign tax credit for taxes paid to foreign jurisdictions. Unlike the term “residence” in Kenya, a U.S. Tax Resident includes both U.S. Citizens and Lawful Permanent Residents, irrespective of the amount of time spent in the United States during any given tax year. The terms also include those who are neither citizens nor lawful permanent residents of the United States but who meet the physical presence test in the United States.

Financial Reporting for Kenyan’s living in the U.S.

Kenyans, who are either permanent legal residents of the United States or naturalized citizens, are required to file FinCen Form 114 (FBAR) with respect their interest in or signatory authority over Foreign Financial Accounts where the aggregate balance exceeds $10,000 in any given tax year. In other words, if a Kenyan living in the US holds or is a signatory to any financial account(s) in Kenya and the balance on all those accounts is more than $10,000, then he/she has to file an FBAR (Foreign Bank Account Report). Failure to do so can result in significant civil and criminal penalties, and in certain cases, criminal prosecution. In addition, Kenyans, who are considered U.S. Tax Residents are required to file Form 8938 (Report of Foreign Financial Assets) if they meet certain thresholds, and are also required to report their worldwide income including; interest, dividend income and capital gains derived from Foreign Financial Accounts; income derived from rental property held in Kenya as well as any other income derived from Kenya sources including business income or wages received from Kenyan sources.

Intergovernmental agreement(IGA) between Kenya and the U.S.

Although Kenya is a signatory to the CRS, they do not have an intergovernmental agreement in place yet with the United States; In addition, Kenya has yet to conclude a Multilateral Agreement with the United States.

On January 17, 2013, the U.S. Department of the Treasury issued regulations for the implementation of FATCA (Foreign Account Tax Compliance Act), requiring foreign financial institutions (FFI’s) to search their data bases for records related to U.S. Persons and report their names, account numbers and account balances to the Internal Revenue Service. Failure on the part of an FFI to comply with the FATCA rule results in the imposition of 30% withholding on all U.S. source funds received by the non-compliant FFI.

Kenya’s relationship with the United States, its reliance upon Correspondent Bankers for the settlement of payments in U.S. Dollars currency and the fact that inflows from diaspora remittances from the United States constitute over 40% of the total inflows in to Kenya have placed Kenya on the U.S. Radar. Furthermore, Kenyan Banks are required to register as agents of the I.R.S. and commit to collection of information on U.S. Persons holding foreign financial accounts in Kenya.

In 2014, The Department of the Treasury formed a task force comprised of IRS agents, members of the Kenya Bankers Association (KBA) and the Central Bank of Kenya (CBK) as well as financial sector experts to fast-track the process to the final signing of an IGA (Intergovernmental Agreement). As of this date, Kenya and the United States have yet to conclude an IGA. Despite the absence of an executed IGA between Kenya and the United States, Financial Foreign Institutions in Kenya are compelled to comply with FATCA. Accordingly, if you have unreported Foreign Financial Accounts and assets as well as unreported income from Kenya, there is a substantial likelihood that the IRS will learn of your accounts.

Kenya and the United States have yet to conclude a Double Taxation agreement, which would prevent Kenyans living in the United States from incurring taxation on U.S. Source income in Kenya. The Kenyan tax authorities have intimated that despite the absence of a Double Taxation agreement with the United States, diaspora income will not be subject to double taxation. Nevertheless, Kenyans living in and working in the United State still have a filing obligation in Kenya and may still have a liability to the KRA, depending upon the effective tax rate in each jurisdiction.

The end to Kenya’s amnesty program signals the beginning of a crackdown on Kenyans living in the United States who fail to report their U.S. source income and assets to Kenya. Kenyans living in the United States (permanent residents and Citizens) should be concerned if they have foreign financial accounts (aggregate of $10,000 and above) or income from Kenya that they have failed to report to the United States. These transgressions can result in civil and criminal penalties and in the worst scenario criminal prosecution. Kenyans waiting to become naturalized are particularly vulnerable since a felony conviction in all likelihood will result in deportation. Conversely, Kenyans, who fail to report their U.S. Source income and Assets to the KRA, could find themselves in dire circumstances in the form of stiff penalties and potential criminal prosecution.

 

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The Non-willful FBAR Penalty and the Slow Death of Reasonable Cause.

FBARNon Willful FBAR Penalty Ruling.

A December 2017 decision of the Court of Federal Claims in Jarnagin v. United States begs the question: Whether a Taxpayer can ever have a reasonable cause defense to the assessment of the Non-Willful FBAR Penalty. The Court concluded that a Taxpayer, who failed to read his return and correctly ascertain that a timely FBAR was due could not have a reasonable cause defense. This may have serious implications in light of the recent announcement by the IRS that the Offshore Voluntary Disclosure Program will end on September 18, 2018 and their suggestion that the Streamline Filing Compliance Procedures may also be scrapped in the future.

The Jarnagin decision involved a Taxpayers’ suit to recover $80,000 in Non-Willful FBAR penalties assessed over a four-year period for their failure to file FinCen Form 114 (FBAR). The Taxpayers were successful business people, who maintained Foreign Financial Accounts in Canada. They used a return preparer during the four-year period but did not tell the return preparer about the accounts. They argued that they were unaware of the FBAR filing obligations and that their return preparer should have raised the issue based on the information the Taxpayers furnished the return preparer. The Court disagreed.

The Court relied upon the meaning of reasonable cause found in Title 26 (the Tax Laws) under I.R.C. §§ 6651(a) and 6664(c) (1) in sustaining the penalties. Citing Moore v. Unites States, the Court concluded that “there is no reason to think that Congress intended the meaning of ‘reasonable cause’ in the Bank Secrecy Act to differ from the meaning ascribed to it in the tax statutes.” Consequently, those who have yet to come forward and make a disclosure of their Foreign Financial Accounts could face the assessment of the Non-Willful FBAR penalty for each of their accounts for multiple years. Furthermore, if the Streamlined Filing Compliance Procedures survive, routine rejection of a Taxpayer’s reasonable cause defense may become the order of the day.

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FBAR Collections Ten Billion and Counting

IRS Releases 2016 Offshore Voluntary Compliance Statistics

irs headquarters sign in washington d.c. a place for fbar reporting and becoming Fatca compliant

On October 21, 2016 the IRS released the latest statistics on Taxpayers who have made disclosures under the Offshore Voluntary Disclosure Program (OVDP) or by using the Streamline Procedures.

According to the News Release, a total of 55,800 taxpayers have come into compliance since 2009, resulting in the collection of approximately $9.9 billion in taxes, interest and penalties.

An additional 48,000 Taxpayers have made disclosures using the Streamlined Procedures, paying $450 million in taxes, interest and penalties.

In its News Release, the IRS implies that IRS detection is inevitable for those who fail to come forward.

The foregoing is based upon Taxpayer information received by the IRS through a number of initiatives including:

(i) inter-governmental agreements (IGA’s) executed between the U.S. and its international partners under FATCA providing for the exchange of Taxpayer  financial information;

(ii) Taxpayer information provided by institutions participating in the  Swiss Bank Program;

(iii)  criminal prosecution of Foreign Financial Institutions, institution relationship managers, bank officers, attorneys and other facilitators;

(iv) information gathered in response to the issuance of a John Doe Summons;

(v) Taxpayer information obtained from IRS “Whistleblowers;” and

(vi) Taxpayer information gathered through IRS participation in various international task forces.

For those who elect to proceed under the Streamline Procedures, the bar to establish “non-willfulness” has been raised. The IRS will no longer accept Taxpayer applications under the Streamlined Procedures unless the Taxpayer provides a “narrative statement of facts,” pays the tax due, and submits the required information returns.

This statement must clarify why the particular party failed to disclose offshore assets. Accordingly, a request for relief that fails to contain a detailed explanation, in all likelihood, will result in a denial of relief.  Similarly, a statement that the Taxpayer was unaware of the filing and reporting requirements will not meet the threshold for non-willfulness.

Finally, taxpayers, who self prepared their returns and who answered “no” to questions 7a and 7b on Schedule B pertaining to the existence of an interest in or signatory authority over a foreign financial account, will find it difficult, if not impossible, to establish “non-willfulness.”

© Anthony N. Verni, Attorney At Law, Certified Public Accountant         10/23/2016

A press release from the IRS

https://www.irs.gov/uac/newsroom/offshore-voluntary-compliance-efforts-top-10-billion-more-than-100000-taxpayers-come-back-into-compliance

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Outrunning the IRS: FBAR Statute of Limitations Guidelines

FBAR statute of limitations can cause a criminal investigation into tax fraud by the IRS

What Happens If Someone Fails to File an FBAR?

A wrinkle in the law for those with interests in or signature authority over foreign financial accounts, including bank accounts, brokerage accounts, mutual funds, trusts, or other type of foreign financial accounts, exceeding certain threshold is the requirement that such persons file an FBAR or “Report of Foreign Bank and Financial Accounts.” This filing obligation was intended to curb the use of foreign accounts to evade U.S. income tax. As a result, FBAR reporting forms are now required by the IRS and enforced through the Bank Secrecy Act, which require that you file reports annually. So what happens if you fail to file an FBAR and how long do you have to wait before you are in the clear? 

The Statute of Limitations is Six Years or longer.

The IRS says 6 years, judged from when the FBAR was due is the tolling time for the statute of limitations. That’s June 30 following the calendar year being reported. For instance, the 2016 FBAR is due June 30, 2017, and the statute runs on June 30, 2023.

Even with the bright line six-year statute of limitations, the IRS can also use another date. According to 31 U.S.C. 5321(b) the statute of limitations is judged as six years from the time of the “transaction.” The problem with this murky language is that the Internal Revenue Manual does not define or interpret when a transaction occurs for the purposes of the FBAR due date.

There is also a question with respect to U.S. Taxpayers who reside outside of the United States and whether the statute is suspended for purposes of FBAR compliance while the Taxpayer is outside of the United States, consistent with treatment under the Internal Revenue Code with respect to income.

While the IRS requires you file an FBAR and sets out the statute of limitations on filing, FBARs are administered by the Department of Treasury and its Financial Crimes Enforcement Network. Despite this administration authority the Financial Crimes Enforcement Network delegated its FBAR authority to the IRS in 2003.

It is important to note, the United States Tax Court, in Williams v. Commissioner determined that it did not have jurisdiction to consider FBAR penalties. As such, Taxpayers do not have the benefit of pre-payment judicial review.

The IRS has tremendous discretion to determine what constitutes a transaction for the purposes of FBAR and assess FBAR penalties and also the circumstances under which the statute of limitations may be tolled.

Additionally, when it comes to the statute of limitations, closing your accounts and waiting the six year period may seem like the best option at first, but quietly closing accounts and disposing of funds could conceivably backfire.

The IRS may view this action as evidence of evasion or consciousness of guilt. Making this move could put you in a worse position than if you had kept the accounts open and started reporting them prospectively.

If you do choose to close your accounts and manage to make it six full years from your last “transaction” before the IRS notices, you may be in the clear. However, with tremendous deference and authority granted to the IRS to determine what constitutes a transaction and when the statute of limitations truly tolls, as well as determine penalties for FBAR violators, this is a high risk proposition. The IRS has, in the past, argued in income tax cases that this type of “close shop and wait” action is a blatant cover up of a continuing and ongoing criminal activity.

Choices in regards to the FBAR filings and statute of limitations can be extremely difficult. The possibility of large penalties and possible criminal implications require that you seek you legal advice based on your particular situation. There is no one-sized fits all response to FBAR filing and the statute of limitations. Consult your tax attorney before making any decisions regarding FBAR and the statute of limitations.

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Finding an FBAR Lawyer to Help Avoid Criminal Charges

How to Find a Good Tax Attorney

FBAR Lawyer to help clients avoid Criminal Charges by the IRSYou’ve discovered you have to file the Foreign Bank Account Report but are having trouble finding an FBAR attorney. As you search across the web, it may seem as though there are attorneys for any number of issues, except this specific one.

If you’re looking for an FBAR lawyer, but having trouble finding the right person for your case, you aren’t alone. In fact, there is actually no such thing as an “FBAR lawyer”. FBAR is simply shorthand for a Foreign Bank Account Report which must be filed with the IRS.

The Report of Foreign Bank and Financial Accounts (FBAR) requires taxpayers with accounts totaling more than $10,000 to file an annual report with the U.S. Treasury. For taxpayers with offshore accounts totaling more than $50,000 during 2011, a brand new requirement came into effect – Form 8938 (Statement of Foreign Financial Assets).

With the full enforcement of the Foreign Account Tax Compliance Act (“FATCA”) on July 1, 2014, all foreign banks began requiring their U.S. account holders to disclose their social security numbers and other information. Banks do this to both protect themselves, and to report U.S. account holders who have foreign accounts to the IRS. But the IRS knows that most people aren’t willfully evading taxes. The creation of the Offshore Voluntary Disclosure Initiative, offers reduced civil penalties for taxpayers who come forward with unreported accounts and can ensure that you don’t face FBAR criminal penalties.

Given the recent publicity surrounding FBARs, and the civil and criminal penalties associated with the failure to file an FBAR, individuals with offshore accounts and tax issues are on the hunt for an FBAR attorney. Stop searching for an “FBAR attorney” and focus your search on a premier tax attorney.

If you don’t come forward and disclose your foreign assets, you could face a civil FBAR penalty of $10,000 per account, per year. You read that right. That means if you have 5 years and 20 accounts in each year, you could face a $1M FBAR penalty, even if all those accounts combined only held $11,000. Tack on the potential criminal penalties, and you’ll wish you had spent a little time and money up-front talking to a tax professional.

You don’t need just any tax attorney, though. With the aggressive nature of the IRS audit process and the possibility that criminal charges can be brought for failure to file FBAR, you should seek out a tax attorney with both tax litigation and criminal tax skills to help you navigate the murky waters of IRS disclosure.

This is not an area of the law you want to try to go it alone. Seek out a qualified tax attorney with experience litigating and handling the IRS. If you choose to go alone, or choose to ignore the filing requirement altogether you could face thousands in civil penalties and jail time.

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No 5th Amendment Privilege in Submission of Foreign Bank Accounts Records

5th amendment privilegeThe US District Court for the District of New Jersey has applied the required records doctrine to documents required to be maintained under the US Bank Secrecy Act (BSA), and thus rejected taxpayers’ argument that they can refuse to produce such documents by invoking their privilege against self-incrimination under the Fifth Amendment to the US Constitution (United States of America vs. Eli Chabot and Renee Chabot, Civ. No. 14-3055 (FL W), 3 October 2014).

On May 12, 2012, Eli and Renee Chabot, appeared in front of the IRS to testify. The Chabots, on the advice of counsel, asserted their Fifth Amendment privilege and refused to answer any IRS questions about foreign bank accounts.

On June 20, 2012, the IRS issued another summons, requesting the parties to give testimony and produce extensive documents about foreign bank accounts. On July 13, 2012, the Chabots’ counsel advised the IRS that the Chabots would not appear, were asserting their Fifth Amendment privilege, and declined to produce the requested documents.

The US District Court stated that the required records doctrine applies if the following requirements are met:

-The purposes of the government inquiry must be essentially regulatory

-Information is to be obtained by requiring the preservation of records of a kind that the regulated party has customarily kept

-The records must have assumed public aspects that render the records at least analogous to public documents

In the case of the Chabots, the Court determined that the required records doctrine prevented the taxpayers from asserting their Fifth Amendment privilege, and the court granted the IRS’s petition to enforce its summons served on the taxpayers.

 

 

 

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