Offshore Bank Accounts: Will The Fifth Amendment Protect You?


If you have money overseas and you've been hearing about the IRS crackdown on people who haven't reported their offshore bank accounts, you may be feeling anxious about it. The penalties are big enough to wipe out all the money that's there, and criminal prosecution is even being used against those who don't disclose their accounts. You may be wondering what protections are available, or if using the Fifth Amendment will help.


Most Americans have at least a vague understanding of the Fifth Amendment and its use. You invoke the protections against having to incriminate yourself in court by “taking the Fifth," and you are allowed to refuse to testify if your information is incriminating to yourself. You may think that if the IRS takes you to court, you could refuse to produce the information regarding your offshore bank accounts—since they might be incriminating against you—by using the Fifth Amendment protections.


Not if the Required Records Doctrine has its way, and in recent trials, it has definitely had its way. Never heard of the Required Records Doctrine? It is the very doctrine that the courts have used to force foreign banks to hand over the account records of U.S. account holders, and thus be able to use those records to incriminate those taxpayers.


The reason is because the protection applies differently to private persons and corporate entities:

  • In the prosecution of individuals for tax evasion using offshore bank accounts, the requirement to produce personal records, papers, and effects that are incriminating could be considered subject to the protections of the Fifth Amendment or immunity agreements.
  • The banks in question are not quite as protected as an individual. The protections do not extend to corporate “persons” and thus, the records kept by them. Furthermore, even if you consider the records kept by the banks to be your own personal private records, the courts do not see it this way.


How do the courts see it?


They feel that since the government sets up the requirements for the way banks and other institutions keep records, those records take on more of a public nature and lose some of their private status. The reason the government sets up requirements for record keeping in the first place is so that sufficient information will be available in cases such as these—the regulatory inquiries the IRS is conducting—so that enforcement of public regulations is made possible.


Did you know that not only is there a requirement to file reporting forms but to keep records?


You must retain records that you used and should have used to create such as the FBAR and other offshore bank account reporting forms. Even if you file your FBAR and/or associated forms, you could still be penalized for destroying or not keeping offshore bank account documents.


Basically, the courts figure that if the government sets requirements for the creation of records, the government has a right to require those records upon demand and that they’re more public records than private. Even a private individual may be compelled to produce these documents, since it is the documents themselves that do not have the protections, even if they tend to incriminate the individual that must produce them.


In light of these developments, if you are depending on the protections of the Fifth Amendment for failing to disclose your offshore accounts, be careful! The courts do not seem to be trending in your favor with these cases. (And a warning: Federal courts seldom make law that hinders the Federal Government).


If you are concerned about any misfiled or unfiled foreign reporting documents, contact us to set up a complimentary, confidential consultation.