An excellent summary of two recent court cases related to FBAR appeared in Novemeber issue of the New York Law Journal and is available online at the web page of the author, Jeremy H. Temkin.
November 10, 2011
New York Law Journal
Under Treasury Department regulations, taxpayers are required to keep records relating to accounts they maintained at foreign financial institutions. Faced with a subpoena for such records, a taxpayer who did not disclose a foreign account on his income tax returns and on FBARs faces a difficult dilemma: producing the records will demonstrate that his previously filed returns were false, while denying that he has the records could subject him to prosecution for failure to keep required records. This article discusses two recent decisions — one out of the Ninth Circuit and one from the United States District Court for the Southern District of Texas — addressing taxpayers’ assertion of their rights under the Fifth Amendment in response to such subpoenas.
In one case, the Ninth Circuit ruled that a person could not withhold their bank records on Fifth Amendment grounds, because of the “required records” exception –which is court-speak for why the United States government doesn’t have to pay attention to the Fifth Amendment. In the second case, Judge Lynn N. Hughes ruled against the government, saying that the foreign account information did not qualify as “required records”. The arguments of Hughes are similar to the ones I made in my response to Roy A. Berg’s comment, which I reproduce here.
Your readers need to be aware that they must exercise EXTREME caution before invoking the 5th Amendment protection against self-incrimination. The argument in the article you cite is quite nuanced and can easily be misconstrued.
The US Supreme Court has said that the 5th Amendment extends only to a taxpayer’s refusal to answer questions in the return, and does NOT constitute reasonable cause sufficient to justify a taxpayer’s refusal to file any return at all. The appropriate case is Garner v. U.S., 424 U.S. 648 (1976).
@Roy Thanks for this excellent response.
Let me understand: By what you are saying, you would prefer that readers of the Isaac Brock Society tacitly waive their constitutional rights by complying with unconstitutional demands of FBAR?
The first thing I would respond is that you refer to Garner. But that of course applies to the tax code. A person cannot refuse to file a tax return on Fifth Amendment grounds. But in what sense is FBAR analogous to a tax return? As you know, the Bank Secrecy Act is not part of the Internal Revenue code and it is aimed at detecting money laundering, criminal tax evasion, and terrorism. If that is the case, every person required to fill out an FBAR has a prima facie Fifth Amendment argument against filling out: If the only reason the government needs the information is to detect a crime, not to collect taxes, then the government is only collecting the information in order to incriminate us. That is the information’s only useful purpose. Thus, we are essentially waiving both our 4th and the 5th amendment rights when filling out the FBAR. Furthermore, since our accounts are in a foreign jurisdiction, we are the most likely ones to incriminate ourselves by filling them out. But now the only crime that we’ve committed is the failure to file, so that the inherent flaw in the FBAR law is the potential criminal penalty itself. It is thus inherently unconstitutional in its demands.
Yeah, sure everyone should be extremely cautious. Perhaps in your view, we should enter the OVDI and just hand over a part of our wealth to government. Or we should fill out the FBARs on a go forward or quiet disclosure basis and thus give the government the ability to assess up to 50% fines and potentially charge us with criminal penalties. I think under these circumstances, my decision to not file FBAR is actually the more cautious route. I rely not only on my Constitutional rights, but upon the protection of the Canadian government in its decision not to collect FBAR fines. Furthermore, now that I am no longer US person, I cannot be expected to file these illegal forms going forward.
I’d like to pull a quote out of article cited above:
Judge Hughes focused on how the government actually uses the records at issue. Rejecting the government’s argument that the requirement that taxpayers keep records was principally regulatory because those records underlie the FBAR reports that purportedly help the government monitor the money supply, Judge Hughes noted that “the government does not manage the money supply or currency flows of the world’s largest economy by annual reports from individual citizens.”
Note that part of the government’s argument to make FBAR information qualify under the “required records” is a make-believe usage of the data to monitor and regulate the money supply. Judge Hughes called them on that issue and said that they only ever use the data for law enforcement. She wrote, “[t]he government instituted the reporting requirement not to regulate its citizens with business abroad but to catch crooks.” Therefore, in the opinion of Judge Hughes, the Fifth Amendment protects the accused from being required to keep and produce records that would be incriminating. Not only is the United States government rapacious, it is also mendacious.