Must You Produce Records of Offshore Accounts?


A Petition to the U.S.Supreme Court may result in the Court deciding whether a taxpayer who has a previously unreported foreign financial account must produce records of the account in a criminal proceeding in spite of the protections afforded by the Fifth Amendment.

The following passages from the petition describe the issues:

“In an effort to aid the government in “criminal tax or regulatory investigations or proceedings” the Bank Secrecy Act (“BSA” of “ACT”) requires citizens and residents of the United States to keep records of specified transactions and relations with a “foreign financial agency” 31 U.S.C. §§5314(a). …Anyone who “willfully violates these regulations commits a felony…So does anyone who [w]illfully submits a false statement on a tax return such as a statement falsely denying having an interest in or authority over a foreign account subject to the regulations”

There are several important factors to consider if you are a U.S. taxpayer and have an unreported foreign financial account. First, and foremost is consideration of entering the Offshore Voluntary Disclosure Program (“OVDP”). You can enter the program if you are not already the subject of an investigation (civil or criminal). If you are the subject of an investigation then you will be ineligible for the OVDP and must then battle out the investigation, including requests to produce records and hope that the Supreme court decides to hear the matter cited above and decides that the Fifth Amendment applies. Remember, the production of the “required records” is only one part of the investigation. The government must still prove that taxpayer conduct is “willful”.

Willfulness is a finding fact based upon the taxpayer making a knowing and conscious decision to act. The opposite of “willful conduct” is conduct based upon a “reasonable cause”. In case of failure to timely and accurately report foreign financial accounts on Form TD90-22.1 (“FBAR”) and accurately report income on personal income tax returns there are multiple factors that go to reasonable cause. The question for each taxpayer to decide is when and how best to come forward with the information in order to minimize adverse tax and other consequences. The objective should be to avoid prosecution, and limit the risk of penalties for tax fraud and evasion and failure to file FBAR’s. Other penalties for unfiled information returns, such as a Report of Foreign Gifts or Bequests, or Controlled Foreign Corporation or Partnership return can also apply.



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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