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Subpoenas, self-incrimination and financial account records

How far can federal authorities go in seeking to compel American taxpayers to produce records concerning their foreign accounts? To be sure, there is no definitive answer to that question. But as the U.S. government continues its recent efforts to enforce offshore account compliance, it is important to become informed about the basic principles involved.

One of those principles is that the Fifth Amendment protection against self-incrimination applies to tax law just as much as it any other area of the law. Because of this protection, it isn't necessary to always cough up every single financial record you have, just because the IRS, a grand jury or a federal prosecutor asked for it.

To be sure, there is a significant exception to the Fifth Amendment privilege. The U.S. Supreme Court has long recognized an exception called the required records exception. The exception applies to certain types of records that are kept in accordance with an established government regulatory framework.

In a recent case in federal court, a grand jury sought records regarding foreign bank accounts held by the target of the investigation and his wife. Subpoenas duces tecum were issued, directing the man and his wife to produce the records.

The taxpayers who received these subpoenas argued that they were not required to comply. Instead of producing the records, they involved their Fifth Amendment privilege against self-incrimination.

The case was first argued in federal district court. After a ruling there against the taxpayers, it went to a federal appeals court. The appeals court upheld the lower court. The reasoning was that the Fifth Amendment privilege did not apply because of the recognized records exception. Among the records that were involved, the court noted, were Reports of Foreign Bank and Financial Accounts - widely known as FBAR.

Source: "In re Grand Jury Proceedings, No. 4-10," U.S. Court of Appeals for the Eleventh Circuit, 2-7-13

Our firm handles situations similar to those discussed in this post in California. To learn more about our practice, please visit our page on offshore accounts.

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