On July 27, 2015 we posted “Required Records Doctrine Trumps 5th Amendment Defense For Overseas Accounts!” were we discussed the Third Circuit ruling that a married couple must turn over their foreign bank account records to the Internal Revenue Service, saying the couple can’t shield themselves by asserting their Fifth Amendment right against self-incrimination.
This comes after our post “Fifth Amendment Does Not Apply to Offshore Banking Records,” where we discuss that 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).
In 2010, French authorities tipped off the IRS to several U.S. citizens holding undisclosed accounts with HSBC. One of the accounts belonged to Pelsa Business Inc., an entity where Eli Chabot was the beneficial owner, the IRS was told.
The agency responded in 2012 by issuing summonses to the Chabots to testify and produce documentation on their foreign bank accounts, but the couple held to their Fifth Amendment rights and declined. The IRS later revised the summonses to limit their scope only to records that holders of foreign bank accounts are required to keep under the Bank Secrecy Act of 1970, but the Chabots again refused to comply.
On appeal, the Chabots argued:
(1) allowing the government to rely on the required records exception to enforce the summonses in this case will lead to general governmental abrogation of the Fifth Amendment privilege for any “failure to report” crime;
(2) the information that would be gleaned from compliance with the summonses is almost identical to what the government needs to charge the Chabots with the felony of willful failure to report an overseas account in the Report of Foreign Bank and Financial Accounts, thus requiring the Chabots to incriminate themselves; and
(3) the records that 31 C.F.R. § 1010.420 requires accountholders to keep do not satisfy the three-pronged test for applying the required records exception to the Fifth Amendment privilege.
The government’s response to these arguments is that the Chabots’ records fall within the required records exception to the Fifth Amendment privilege. Therefore, the questions before the panel are whether the Chabots’ account records fall within the required records exception to the Fifth Amendment privilege and, if so, whether the Chabots’ policy concerns are insurmountable barriers to our application of this exception.
Unpersuaded by the overriding effect of the stated concerns, appeals court concluded that the Chabots’ account records fall squarely within the required records exception to the Fifth Amendment privilege.
Therefore, they affirmed the District Court’s grant of the IRS’s petition. The case is U.S.A. v. Chabot et al., case number 14-4465, in the U.S. Court of Appeals for the Third Circuit.
Now according to Law360 appealed in a petition filed earlier this month, Eli and Renee Chabot asked the Supreme Court to consider this U.S. Court of Appeals for the Third Circuit decision, which cited an exception to the Fifth Amendment privilege for records that are required to be maintained by law.
In their petition to the Supreme Court, the Chabots argued that the application of the required records exception in their case went beyond the usual scope of the doctrine. They say that as a result of the 1976 USA v. Fisher case, the Supreme Court has determined that the doctrine obligated witnesses to turn over “testimonial communications,” communications that simply prove whether documents exist and whether they are authentic.
“The production of these documents, as distinct from the contents of these documents, did little to incriminate the witness,” the couple explained
They said the documents sought in their case, their Foreign Bank Account Reports, would be far more damning, because these filings were obligatory only when certain underlying conditions existed. The couple said that by producing these documents, they could be implicitly acknowledging that their accounts were subject to certain federal statutes.
“Such an admission, combined with the fact that the government knows whether an FBAR was in fact filed by petitioners, forces them to admit facts the government would otherwise have to prove to establish the felony of failure to file an FBAR or to retain the required information,” the couple said.
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Original Post By: Ronald Marini