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USA: Circuit Decision Requires Production of Foreign Bank Account Records

15 January 2014   (0 Comments)
Posted by: Authors: Mark A. Srere and Kristin F. Petersen
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Author: Mark A. Srere and Kristin F. Petersen (Bryan Cave LLP)

On December 19, 2013, the U.S. Court of Appeals for the Second Circuit upheld the lower court decision  that the Fifth Amendment‟s act-of-production privilege did not relieve the target of a grand jury subpoena  of his duty to produce records relating to his foreign bank accounts (See United States v. Doe, No. 13-403- cv, 2013 BL 352094, (2d Cir. Dec. 19, 2013)). Given the requirement that U.S. taxpayers reveal the  existence of foreign bank accounts on their tax returns, the production of such records can furnish the  proof necessary to convict someone of a felony. As discussed below, this decision (in-line with other  circuits) emphasizes the importance of applying for the IRS amnesty program, if you qualify. 

The John Doe defendant ("Doe”) appealed the District Court‟s order compelling him to produce records  that were related to his foreign bank accounts and which all U.S. foreign account holders are required to  maintain under the Bank Secrecy Act, 31 C.F.R. § 1010.420 ("BSA”). Doe primarily argued that compliance  violated his Fifth Amendment privilege against self-incrimination, and he disputed the District Court‟s  assertion that the government‟s legitimate regulatory interest in the creation and preservation of these  "required records” obviated the privilege. 

In its analysis, the Court of Appeals relied on a three-factor test set forth in Grosso v. United States, 390  U.S. 62, 67-68 (1968), to determine whether documents are required records: "[F]irst, the purposes of  the United States‟ inquiry must be essentially regulatory; second, information is to be obtained by  requiring the preservation of records of a kind which the regulated party has customarily kept; and third,  the records themselves must have assumed „public aspects‟ which render them at least analogous to  public documents.” 

The Court found that the facts of the case satisfied each factor enumerated in the Grosso test. This  decision follows similar decisions in the Fourth, Fifth, Seventh, Ninth and Eleventh circuits. There does  not yet appear to be a circuit split on this issue. 

This case law clearly elevates the need to consider the IRS Offshore Voluntary Disclosure Program for  individuals with possible criminal exposure for the failure to timely disclose offshore financial accounts.  The IRS began an open-ended offshore voluntary disclosure program in January 2012 and the program is  subject to closure at any time. The objective of the program is to bring into compliance with the U.S. tax  laws taxpayers that have used undisclosed foreign accounts and undisclosed foreign entities to avoid or  evade U.S. 

The program requires an initial pre-clearance submission to determine whether or not the Government is  already aware of the taxpayer‟s noncompliance. Acceptance into the program enables a taxpayer to avoid  substantial civil penalties and generally eliminates the risk of criminal prosecution.

This article first appeared on lexology.com.


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