The UBS saga continues. The Ninth Circuit found a Catch-22 for secret account holders in a case, In re Grand Jury Investigation M.H. v. United States, No. 11-55712 (9th Cir. Aug. 19, 2011), against a former client of UBS who moved his accounts in June 2010 to another Swiss bank. The prosecutor, seeking a grand jury indictment, subpoenaed the taxpayer's foreign account records, and the taxpayer claimed Fifth Amendment privilege from revealing information about his foreign accounts. The three-judge panel nipped that privilege claim in the bud. There's a law requiring taxpayers to keep records of their foreign accounts--name of bank, number of account, amount in the acount--available for inspection. Bank Secrecy Act of 1970 (BSA), 31 U.S.C. § 5311. And that information is required to be reported to the IRS on Form TD F 90-22.1, fondly known as a "FBAR" by tax practitioners advising clients about their offshore reporting obligations.
Information isn't privileged when it is required to be maintained with the purpose of being inspected, said the judges, invoking the 'required records doctrine' originating in a 1948 Supreme Court case, Shapiro v. United States, 335 U.S. 1, 17 (1948) (holding that "the privilege does not extend to records required to be kept as a result of an individual's voluntary participation in a regulated activity").
So the taxpayer is in a pickle. If he kept the account information as required by law, he must reveal it to the government and it may show that he didn't report as required to the IRS or that he reported falsely. If he didn't keep the information as required by law, he will have committed a felony in violation of the records law.
One more example of why taxpayers with accounts sequestered in foreign banks had better come forward sooner rather than later. The UBS deferred prosecution case appears to have been successful in breaking the dam. The taxpayer in this case (referred to solely as M.H.) turned up in the disclosed information after the IRS agreed to defer prosecution--M.H. had held assets in UBS and then switched them to another Swiss bank account back in 2002.
The IRS net is spreading--with bankers/advisers as well as US taxpayers who are/were foreign bank customers subject to criminal charges. See David Voreaos, Ex-UBS Client Must Give Tax Records To Grand Jury, Court Holds, Bloomberg.com (Aug. 23, 2011).
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