1. The Fifth Amendment privilege against self-incrimination does not apply to records that fall under the Required Records Doctrine, and a taxpayer who is the subject of a grand jury investigation into his use of offshore bank accounts cannot invoke the privilege to resist compliance with a subpoena seeking records kept pursuant to the Bank Secrecy Act, the U.S. Court of Appeals for the Seventh Circuit ruled Aug. 27 (In re Special February 2011-1 Grand Jury Subpoena Dated September 12, 2011, 7th Cir., No. 11-3799, 8/27/12). 

    The records were sought as part of a grand jury's investigation of a taxpayer, known only as T.W., regarding his possible use of secret offshore bank accounts to avoid     U.S. taxes.

    The U.S. District Court for the Northern District of Illinois quashed the subpoena, agreeing with T.W. that the act of producing the records was testimonial and could result in T.W. incriminating himself.

    The U.S. Court of Appeals for the Seventh Circuit joined the Ninth Circuit in holding that the required records exception to the Fifth Amendment privilege against self-incrimination applies to records of foreign bank accounts.

    "Having determined that T.W.'s act of production privilege is not an obstacle to the Required Records Doctrine, we must decide whether the records sought under the subpoena fall within the Required Records Doctrine. In order for the Required Records Doctrine to apply, three requirements must be met: (1) the purposes of the United States inquiry must be essentially regulatory; (2) information is to be obtained by requiring the preservation of records of a kind which the regulated party has customarily kept; and (3) the records themselves must have assumed public aspects which render them at least analogous to public document. Grosso, 390     U.S. at 67, 68 (emphasis added)."

    "Recently, in a case nearly identical to this one, the Ninth Circuit held that records required under the Bank Secrecy Act fell within the Required Record Doctrine. In re M.H., 648 F.3d 1067 (9th Cir.2011) cert. denied, No. 11?1026, 2012 WL 553924 (    U.S. June 25, 2012). In the Ninth Circuit's case, the court held that the witness could not resist a subpoena identical to the one in this case on Fifth Amendment grounds because the records demanded met the three requirements of the Required Records Doctrine. Id. We need not repeat the Ninth Circuit's thorough analysis, determining that records under the Bank Secrecy Act fall within the exception. It is enough that we find and we do that all three requirements of the Required Records Doctrine are met in this case."

    Because the Required Records Doctrine is applicable, and the records sought in the subpoena fall within the doctrine, T.W. must comply with the subpoena.

    This holding means that people who have foreign bank accounts can be forced to produce records that may prove that they have committed tax crimes, including failure to file FBARs, filing false tax returns, tax evasion, and conspiracy to defraud the U.S.

    The Southern District of California, in the M. H. case, has gone a step further by holding that even if the account holder does not have the records, he or she must go to the bank and request the records for the government. These decisions, while valid precedents, are limited to the Seventh and Ninth Circuits.

    Anton A. Ewing, JD 
    Posted by
    0

    Add a comment


  2. Anton Ewing Tax

    What a difference one court case makes.  Gone is the believe that it was almost impossible for the IRS to get the BIG FBAR penalty (of half the value of the offshore bank account for each and every unreported year).
    United States Court Of Appeals for The Fourth Circuit reversed a district court opinion in favor of the taxpayer.  Here is what happened.
    The Government brought its  action seeking to enforce civil penalties assessed against J. Bryan Williams for his failure to report his interest in two foreign bank accounts for tax year 2000, in violation of 31 U.S.C. § 5314. Following a bench trial, the district court entered judgment in favor of Williams.
    The Government appealed.   Because the Court of Appeals concluded that the district court clearly erred in finding that the Government failed to prove that Williams willfully violated § 5314, it reversed the non-guilty verdict.
    You will read, below, that the key evidence is the CPA’s tax organizer and the plea bargain statement.
     Here is what the Court issued as to why with bold print as to the flash points.
    Federal law requires taxpayers to report annually to the Internal Revenue Service (“IRS”) any financial interests they have in any bank, securities, or other financial accounts in a foreign country. 31 U.S.C. § 5314(a). The report is made by filing a completed form TD F 90-22.1 (“FBAR”) with the Department of the Treasury.1 See id. § 5314; 31 C.F.R. § 1010.350. The FBAR must be filed on or before June 30 of each calendar year with respect to foreign financial accounts maintained during the previous calendar year, 31 C.F.R. § 1010.306(c), and the Secretary of the Treasury may impose a civil money penalty on any person who fails to timely file the report, 31 U.S.C. § 5321(a)(5)(A).
    Moreover, in cases where a person “willfully” fails to file the FBAR, the Secretary may impose an increased maximum penalty, up to $100,000 or fifty percent of the balance in the account at the time of the violation. Id. § 5321(a)(5)(C). The authority to enforce such assessments has been delegated to the IRS. 31 C.F.R. § 1010.810(g).
    In 1993, Williams opened two Swiss bank accounts in the name of ALQI Holdings, Ltd., a British Corporation (the “ALQI accounts”). From 1993 through 2000, Williams deposited more than $7,000,000 into the ALQI accounts, earning more than $800,000 in income on the deposits. However, for each of the tax years during that period, Williams did not report to the IRS the income from the ALQI accounts or his interest in the accounts, as he was required to do under § 5314.
    By the fall of 2000, Swiss and Government authorities had become aware of the assets in the ALQI accounts. Williams retained counsel and on November 13, 2000, he met with Swiss authorities to discuss the accounts. The following day, at the request of the Government, the Swiss authorities froze the ALQI accounts.
    Relevant to this appeal, Williams completed a “tax organizer” in January 2001, which had been provided to him by his accountant in connection with the preparation of his 2000 federal tax return. In response to the question in the tax organizer regarding whether Williams had “an interest in or a signature or other authority over a bank account, or other financial account in a foreign country,” Williams answered “No.” J.A. 111.
    In addition, the 2000 Form 1040, line 7a in Part III of Schedule B asks:
    At any time during 2000, did you have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? See instructions for exceptions and filing requirements for Form TD F 90-22.1.
    J.A. 131. On his 2000 federal tax return, Williams checked “No” in response to this question, and he did not file an FBAR by the June 30, 2001, deadline.
    Subsequently, upon the advice of his attorneys and accountants, Williams fully disclosed the ALQI accounts to an IRS agent in January 2002. In October 2002 he filed his 2001 federal tax return on which he acknowledged his interest in the ALQI accounts. Williams also disclosed the accounts to the IRS in February 2003 as part of his application to participate in the Offshore Voluntary Compliance Initiative.2 At that time he also filed amended returns for 1999 and 2000, which disclosed details about his ALQI accounts.
    In June 2003, Williams pled guilty to a two-count superseding criminal information, which charged him with conspiracy to defraud the IRS, in violation of 18 U.S.C. § 371, and criminal tax evasion, in violation of 26 U.S.C. § 7201, in connection with the funds held in the ALQI accounts from 1993 through 2000. As part of the plea, Williams agreed to allocute to all of the essential elements of the charged crimes, including that he unlawfully, willfully, and knowingly evaded taxes by filing false and fraudulent tax returns on which he failed to disclose his interest in the ALQI accounts. In exchange for his allocution, Williams received a three-level reduction under the Sentencing Guidelines for acceptance of responsibility.3
    In his allocution, Williams admitted the following:
    I knew that most of the funds deposited into the Alqi accounts and all the interest income were taxable income to me. However, the calendar year tax returns for ’93 through 2000, I chose not to report the income to my — to the Internal Revenue Service in order to evade the substantial taxes owed thereon, until I filed my 2001 tax return.  I also knew that I had the obligation to report to the IRS and/or the Department of the Treasury the existence of the Swiss accounts, but for the calendar year tax returns 1993 through 2000, I chose not to in order to assist in hiding my true income from the IRS and evade taxes thereon, until I filed my 2001 tax return.
    Anton Ewing JD
    Posted by
    0

    Add a comment


  3. By Anton A. Ewing, JD

      The California Franchise Tax Board (FTB) is collecting delinquent tax debts through the Financial Institution Record Match (FIRM) program. FIRM uses automated data exchanges to locate bank accounts held by Californians who have tax debts. The FIRM program will match records on a quarterly basis in order to collect tax debts from both individuals and businesses. No financial institution doing business within the state of California is exempt from participating in the program. However, in rare cases temporary exemption or suspension of participation may apply. Banks that chose not to comply are subject to large fines each year. Accounts that are eligible for tax levies include checking and savings accounts, as well as mutual funds. FIRM is similar to the Financial Institution Data Match (FIDM) program, which is used to collect delinquent child support debt.

       The FIRM program allows the FTB to use data obtained from banks to find assets and garnish bank accounts up to 100 percent of the amount owed. As of April, the FTB began to serve tax levies on the bank accounts of individuals who have delinquent balances, including penalties, interest, taxes and fees that have been identified through FIRM. With the help of the FIRM program, the FTB expects to issue 475,000 tax levies this fiscal year, a 75 percent increase from last year.

       In order to avoid tax levies you should contact Anton A. Ewing, JD to consider possible alternatives including installment agreements, offer in compromise and bankruptcies.


       Data between FTB and FIRM can be exchanged in two ways. In the first method, information regarding open accounts is given directly to the FTB for the Board to match accounts with delinquent taxpayers. This method is only available to institutions that are unable to match the information against their own records. Institutions that do not qualify for the first method must match taxpayer information against their own records. Banks can choose to hire a third-party transmitter to aid in matching the data. Because the accuracy of the data is of the utmost importance, banks must verify matches from third-party services before submitting them to the FTB.

       A 10-day holding period follows the issue of the tax levy to the bank. During this time, the taxpayer or a tax attorney on the taxpayer's behalf may negotiate the amount due or, if financial hardship is creating tax problems, discuss payment options. If the FTB levied an account in error, they will delay the garnishment while they verify the mistake and then issue a garnishment release notice. If the bank has already issued the payment, the Board will return the payment.

     Anton A. Ewing, JD 

    Posted by
    0

    Add a comment


  4. Anton A. Ewing, JD - Tax Expert

    SECTION 179 ELECTION AND BONUS DEPRECIATION EXTENDED

    IRS Code Section 179 allows a taxpayer to fully expense qualified fixed asset purchases in the year they were placed in service. For 2010 and 2011 the maximum Section 179 deduction for federal purposes was $500,000 (California is only $25,000). This deduction begins to phase out dollar for dollar for total fixed assets placed in service greater than $2 million. These limits for 2012 and 2013 are as follows.
    YearMaximum Section 179 DeductionPhase out begins:
    2010-2011$500,000$2,000,000
    2012$139,000$560,000
    2013$25,000$200,000
    Bonus depreciation is the taxpayer’s second opportunity for accelerated deduction of new fixed assets placed in service during the year, and is claimed after the application of Section 179. Bonus depreciation has been extended through December 31, 2012. Not only has this been extended, but the bonus depreciation has been increased from 50% to 100% for assets placed in service after September 8, 2010 and before January 1, 2012. For assets placed in service after January 1, 2012, the original 50% bonus depreciation applies as seen in the summary table below.
    Asset Placed In ServiceBonus Amount
    January 1, 2008 to September 8, 201050%
    September 9, 2010 to December 31, 2011100%
    January 1, 2012 to December 31, 201250%
    Bonus depreciation is not available for purchases of used assets. Bonus depreciation is an automatic deduction unless the taxpayer elects to opt out. If the election to opt out of the bonus depreciation deduction has been made, the IRS must give consent to revoke this election. There is no AMT adjustment for bonus depreciation, and if you claim or elect out of bonus for regular tax purposes, you must do the same for AMT purposes.
    Bonus depreciation is an automatic deduction unless the taxpayer elects to opt out. If the election to opt out of the bonus depreciation deduction has been made, the IRS must give consent to revoke this election. There is not an AMT adjustment for bonus depreciation, and if you claim or elect out of bonus for regular tax purposes, you must do the same for AMT purposes.
    The above description of Section 179 bonus depreciation is for Federal purposes only and represents only the highlights of the rules. Many other rules and limitations apply. Contact our office for assistance in applying these rules to your specific situation. California does not conform to any of the above guidelines.

     Anton A. Ewing, JD


    Posted by
    0

    Add a comment

Loading