Another Court Application of the Required Records Doctrine for Foreign Bank Account Documents (7/4/13)

In United States v. Chen, 952 F. Supp. 2d 321 (7/3/13), here, the district court added to the critical mass of Government victories on the application of the required records doctrine to trump the Fifth Amendment act of production doctrine with respect to offshore bank records.  Chen involved an IRS administrative summons, whereas the prior cases involved grand jury subpoenas.  I don't; think that makes any difference as to the validity of Fifth Amendment assertions and the required records doctrine.

The Court's holding is fairly standard on this issue which I have covered in prior blogs.  The Court goes through the routine for IRS summonses of satisfying itself that the minimal "Powell" standards are present. United States v. Powell, 379 U.S. 48 (1964).  (I will address one of the footnotes at the end of this blog, but defer it for now because it is not relevant to the gravamen of this blog.)

Finding the summons to have met the Powell standards, the Court then addresses the required records issue.  It's analysis is good  but routine.  I do not address it further because that issue has been discussed in prior blogs.

The Court then addressed the taxpayer's Fifth Amendment claim as to "Non-Offshore-Banking Documents" where, of course, there is no counterpart to BSA's requirement to keep records regarding foreign accounts  This analysis also is fairly routine, but in this blog I have not addressed it that much.  So, I quote the entire discussion of that issue:

Having argued that this Court could enforce the summons with respect to the documents that are implicated by the recordkeeping requirements of the Bank Secrecy Act, the IRS asks this Court to "rule upon the Respondent's Fifth Amendment objection with respect to all other summonsed documents after an in camera privilege review of those documents." Mem. Supp. 5. 

Although the Supreme Court has held that the filing of tax returns is one of the "many burdens [an organized society imposes] on its constituents," California v. Byers, 402 U.S. 424, 427 (1971), it notes that "there is some possibility of prosecution — often a very real one — for criminal offenses disclosed by or deriving from the information that the law compels a person to supply," id. at 428. As already noted, such information might incriminate Chen merely by virtue of Chen's act of production. See Smith v. Richert, 35 F.3d 300, 302 (7th Cir. 1994) ("If a subpoena demanded all the documents possessed by the subpoenaed person concerning some subject, by producing them the person would be acknowledging that he possessed them and that they concerned the subject in question, and if this acknowledgment was self-incriminating he could not be forced to produce them."). This is true notwithstanding the fact that, save for the act of production privilege, "the government could compel the production of nonrequired records, because their creation, and the setting forth of potentially self-incriminating facts entailed by that creation, were the author's voluntary choice." Id. In these circumstances, where "the Court is confronted with the question of a compelled disclosure that has an incriminating potential, the judicial scrutiny is invariably a close one." Byers, 402 U.S. at 427.

Within the context of IRS document requests, however, the First Circuit has held that a "blanket objection to the issuance of an IRS summons based on the Fifth Amendment privilege against self-incrimination is not a viable defense." United States v.Allee, 888 F.2d 208, 212 (1st Cir. 1989) (per curiam). Although Chen did "appear before the IRS agent and claim[ed] the privilege on a question-by-question . . . basis," id., his "blanket" objection in response to the summonsed documents does not (of itself) satisfy the First Circuit's requirements for the invocation of the privilege, see id. As the Supreme Court noted in Fisher v. United States, 425 U.S. 391 (1976), the taxpayer may not "avoid compliance with the subpoena merely by asserting that the item of evidence which he is required to produce contains incriminating writing." Id. at 410. 

Having held that Chen's Fifth Amendment privilege is engaged, this Court orders in camera review of the summonsed documents which do not fall within the scope of the recordkeeping requirements of the Bank Secrecy Act in order to determine, on a document-by-document basis, whether Chen's assertion of his Fifth Amendment privilege is made out.

Finally, I said above that I would address a footnote from the Court's discussion of the Powell standards.   Here is the relevant text and footnote:

Although the IRS bears the prima facie burden of showing that the four Powell criteria are met, this burden is, to borrow the First Circuit's language, "not taxing, so to speak." United States v. Gertner, 65 F.3d 963, 966 (1st Cir. 1995). The First Circuit has held, in particular, that the IRS may satisfy the burden by asserting in the "affidavit of the investigating agent that the requirements are satisfied." United States v. Lawn Builders of New Eng., Inc., 856 F.2d 388, 392 (1st Cir. 1988) (per curiam) (quoting Liberty Fin. Servs. v. United States, 778 F.2d 1390, 1392 (9th Cir. 1985) (per curiam)). Once the IRS has satisfied its prima facie burden through the affidavit of one of its officers, the burden of proof shifts to the summonsed taxpayer to "rebut the good-faith presumption that arises in consequence of the government's prima facie case." Gertner, 65 F.3d at 967. n1
   n1 This is an unfortunate use of the word "presumption," since a true presumption shifts only the burden of going forward and not the burden of persuasion. See, e.g., St. Mary's Honor Ctr. v. Hicks, 509 U.S. 502 (1993). It is more accurate to say that once the IRS makes its prima facie case under Powell, the burden to rebut it in order to withhold production falls on the taxpayer.

Civil procedure enthusiasts will appreciate the point addressed in the footnote. The effect of presumptions have been hotly debated among presumption enthusiasts.  True, FRE Rule 301, here, does state the rule as stated in the above footnote.  However, those wanting to pursue the matter, might start with a review of the notes of the advisory committee and various congressional committees which appear immediately after the rule in the above link.