Can the IRS force you to produce foreign bank records?
March 11, 2016
The most recent answer from the Court of Appeals for the First Circuit is yes.
Why can’t you claim a Fifth Amendment privilege against self-incrimination? The answer is the required records exception, which we will discuss in this post.
What is the background? The Bank Secrecy Act regulates offshore banking. If you have any interest (even simply signature authority) in a foreign bank account, the BSA requires you to file an annual Report of Foreign Bank and Financial Accounts (FBAR). Failing to file an FBAR can result in harsh civil penalties and even criminal charges.
Fifth Amendment argument
Here are the facts of the case. The IRS was investigating the taxpayers for a tax liability stemming from 2008. The husband appeared at an interview with the IRS revenue agent, but invoked his Fifth Amendment right and refused to hand over the requested documents.
The Fifth Amendment states, “no person shall be compelled in any criminal case to be a witness against himself.”
The IRS went to court to enforce the summons and obtain the documents in question. The taxpayers argued that a Fifth Amendment claim existed in regards to the compelled action of producing documents.
Required records exception
There is always an exception. The court looked at whether the request fit into the required records exception. It concluded the requested documents were covered by the BSA record keeping requirement and had to be turned over.
Looking further into the recordkeeping requirement, the appeals court found that the BSA purposes – criminal and civil such as preventing tax fraud – landed the BSA-required records within the exception.
The taxpayers also argued that the IRS needed to prove they engaged in offshore banking or possessed offshore banking records to support a document summons. The appeals court disagreed and held that only a “minimal showing” was necessary to enforce the records summons.
This is a summary of the recent case. If you have any interest in a foreign bank or investment account, you need to learn more. Take foreign account compliance seriously. Speak with one of the experienced tax attorneys at Brown P.C. regarding your situation today.