Federal Court States Couple May Not Use Fifth Amendment Privilege to Withhold Foreign Bank Records From the IRS
The District of New Jersey has ordered a couple to comply with an Internal Revenue Service summons to produce documents related to undisclosed foreign financial accounts. In U.S. v. Chabot, the IRS apparently received information from a French authority suggesting the owner of a business failed to disclose offshore bank accounts that were held in the company’s name between 2005 and 2007. After learning of the alleged accounts, the IRS summoned the business owner and his wife to testify regarding the French assets. The couple appeared but refused to answer any questions related to the overseas bank accounts.
About three months later, the couple was again summoned to testify before the IRS. In addition, they were asked to provide a number of documents regarding the alleged foreign financial accounts. Citing their Fifth Amendment privilege not to incriminate themselves, the couple refused to appear or turn over any requested documentation to the IRS.
The IRS responded by seeking a petition to enforce the summons from the U.S. District Court of New Jersey. After the petition was filed, the court asked the couple to present any defenses they had to the agency’s request. The couple again asserted their Fifth Amendment privilege and claimed the Required Records Doctrine (“RRD”) did not apply to the case at hand. The doctrine states that the privilege asserted by the couple does not apply to business records or other public information maintained in accordance with a governmental regulation. The government responded by arguing that, although the Third Circuit Court of Appeals has not yet ruled on the issue presented, the New Jersey court should follow the holding of six other federal circuits stating the RRD applies to the offshore banking information requested under the Bank Secrecy Act (“BSA”).
First, the district court addressed the couple’s claim that the documents requested by the government did not satisfy the elements of the three-pronged RRD test articulated by the U.S. Supreme Court in Grosso. According to the federal court, the requirements of the BSA are essentially regulatory because the statute targets a group of taxpayers who are not necessarily engaging in unlawful activity. Additionally, the information procured using the law is not used solely for the purposes of criminal prosecution. Finally, the New Jersey court stated the BSA is utilized by authorities for a variety of reasons.
The court then dismissed the couple’s claim that the other federal circuits erroneously held that the RRD applied in similar cases because the requested disclosure is closely related to a suspected crime and could force them to admit violating the law. The federal court stated their argument was unpersuasive because the U.S. would still be required to prove the couple acted willfully in order to establish any violations of the BSA. The New Jersey court also stated the couple’s attempts to distinguish their case from those decided by other circuits were unconvincing.
Next, the court turned to the second part of the Supreme Court’s three-pronged test. Although the couple claimed that the requested information did not constitute records that were “customarily kept,” the federal court disagreed. The court added that existing case law did not support the couple’s argument.
Finally, the District of New Jersey examined whether the foreign bank account records requested by the IRS were publicly kept. According to the court, the BSA requires that all records required to be reported under the statute must be maintained for inspection for five years. The court also disagreed with the couple’s assertion that the records sought were private.
After finding that the foreign bank account documents requested by the IRS met the requirements of the RRD articulated in Grosso, the New Jersey federal court granted the government’s petition to enforce the agency’s summons.
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U.S. v. Chabot, Dist. Court, D. New Jersey 2014
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