The Loophole in the Fifth Amendment Protection
When it comes to ensuring you pay your taxes, the government has found ways to get around the protections offered by the Fifth Amendment, which states:
“No person shall… be compelled in any criminal case to be a witness against himself.”
Despite this, a loophole allows the authorities to compel you to incriminate yourself if the evidence is documented.
Supreme Court Ruling onFifth Amendment Protection
In 1984, the Supreme Court ruled that the Fifth Amendment does not protect the contents of private papers.
This means that if a prosecutor subpoenas records you have created or are required to maintain (such as tax documents), you must turn them over.
If you refuse, you could be held in contempt of court, and these records can be used against you in both civil and criminal trials.
Moreover, the situation is even more concerning when it comes to records held by third parties, such as banks.
Prosecutors can issue broad summonses, known as “John Doe summonses,” to these third parties, compelling them to hand over all personal and financial records that meet the government’s criteria.
Courts have repeatedly upheld this practice, particularly in tax investigations.
Recently, prosecutors have intensified their efforts to uncover hidden offshore accounts held by US taxpayers. They target individuals suspected of not filing the “Foreign Bank Account Reporting Form” (FBAR). This can result in severe penalties and legal trouble.
Case Study: Texas Resident and UBS
Consider this example from Texas.
In 2009, Swiss banking giant UBS entered into an agreement with the US Department of Justice to avoid prosecution. The bank admitted to conspiring to help US taxpayers evade taxes. In response to a John Doe subpoena, they agreed to release the account records of about 250 US taxpayers.
This subpoena forced UBS to identify US account holders suspected of tax evasion.
The Justice Department then issued subpoenas to these account holders, including a Texas resident.
In 2011, a grand jury demanded that this resident produce any foreign account records maintained to comply with offshore banking regulations. This included account numbers, the name and address of the foreign institution, the type of account, and the maximum value of each account from 2005 to 2008—essentially the same information required by the FBAR.
When the resident refused to comply on Fifth Amendment protection grounds, the prosecutors persisted.
Initially, the district court sided with the resident, but the 5th Circuit Court of Appeals later reversed this decision. As a result, the resident faced heavy fines and potential imprisonment for five years or more.
The Importance of Compliance
If you’re a US citizen with undisclosed offshore accounts, it’s prudent to disclose them before the authorities find out. They will, sooner or later.
For your protection, it’s advisable to hire a qualified tax attorney rather than an accountant. An attorney can offer the attorney-client privilege that an accountant cannot.
Need Help?
Since 1984, we’ve helped more than 15,000 customers and clients protect their wealth using proven, low-risk domestic and offshore planning. To see if our planning is right for you, please book in a free no-obligation call with one of our Associates. You can do that here.
