Eleventh Circuit Court of Appeals Sustains Required Records Exception to the Fifth Amendment

Mar 01, 2013   
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On February 7, 2013, the U.S. Court of Appeals for the Eleventh Circuit affirmed the decision of the U.S. District Court for the Northern District of Georgia holding that the Required Records Exception overrides a taxpayer/criminal defendant’s Fifth Amendment assertion against incrimination when in respect to foreign bank account records.  A copy of the Eleventh Circuits decision is available here.

The Eleventh Circuit joined with the Seventh Circuit in In re Special Feb. 2011-1 Grand Jury Subpoena Dated Sept. 12, 2011, 691 F.3d 903, 90509 (7th Cir. 2012), available
here, the 9th Circuit in In re Grand Jury Investigation M.H., 648 F.3d 1067, 107179 (9th Cir. 2011), cert. denied, 133 S. Ct. 26 (2012), available here, and the 5th Circuit in In re Grand Jury Subpoena, 696 F.3d 428, 43236 (5th Cir. 2012). Our prior blog entry regarding the Seventh Circuits position on this issue is available here.

The facts of the case are as follows:

A grand jury investigation occurred in the Northern District of Georgia by the IRS and the U.S. Dept. of Justice. The government suspected that the Target, along with his wife, maintained foreign bank accounts both together and individually. For the years under investigation, the Target and his wife filed joint tax returns. Among other things, the governments investigation focused on the Target and his wifes failures to: (1) disclose on their tax returns their ownership of or income derived from their foreign accounts; and (2) file, with the U.S. Department of the Treasury, Forms TD F 90-22.1, Reports of Foreign Bank and Financial Accounts (FBAR) for these alleged accounts.

On June 29, 2011, the grand jury issued subpoenas duces tecum to both the Target and his wife. The subpoenas required the Target and his wife to produce any foreign financial account records that they were required to keep pursuant to the federal regulations governing offshore banking.

The Target and his wife informed the government that they would not produce the subpoenaed records. The government filed a motion seeking to compel their compliance with the subpoenas. In its motion, filed in the district court, the government argued that the Bank Secrecy Act (BSA) and its implementing regulations required the Target and his wife to keep the foreign financial account records sought by the subpoenas.

The Target and his wife filed a response to the governments motion to compel, arguing that the Required Records Exception did not apply to them based on the particular facts and circumstances of their case.  On November 7, 2011, the district court granted the governments motion to compel.  The Target and his wife did not comply with the district courts order. On March 5, 2012, the government moved the district court to hold the Target and his wife in contempt pursuant to 28 U.S.C. § 1826. The district court issued an order holding the Target and his wife in contempt for their failure to comply with the district courts earlier November 7 order.

On appeal, the Eleventh Circuit dispensed with the taxpayer/Target’s argument holding, among other things, that the Fifth Amendment did not apply.  The Eleventh Circuit reasoned that the Supreme Court has made clear that when the government is authorized to regulate an activity, an individuals Fifth Amendment privilege does not prevent the government from imposing recordkeeping, inspection, and reporting requirements as part of a valid regulatory scheme; citing Shapiro v. United States, 335 U.S. 1, 3233 (1948), available here. Interestingly, the 11th Circuit’s opinion fails to mention United States v. Hubbell, 530 U.S. 27 (2000), which held that although there is no Fifth Amendment privilege for the contents of documents, compulsory process may implicate the Fifth Amendment where the witness’s act of producing is inherently testimonial.

The takeaway from this case is that the IRS and the Department of Justice will continue to assert that there are no viable Fifth Amendment protection for taxpayers who have been compelled to produce evidence of their foreign bank accounts. As the Ninth, Seventh, Fifth, and Eleventh Circuits have ruled on this issue, it remains to be seen whether the other Circuits will follow, or whether the Supreme Court will agree to hear a case on this issue.

The attorneys at Fuerst Ittleman David & Joseph have extensive experience in both civil and the criminal tax litigation before the U.S. District Courts and the U.S. Circuit Courts of Appeal. You may contact us by calling 305.3560.5690 or by emailing us at contact@fidjlaw.com