Law School Case Brief
United States v. Chabot - 793 F.3d 338 (3d Cir. 2015)
Foreign bank account records that are required to be kept by 31 C.F.R. § 1010.420 fall within the required records exception to the Fifth Amendment privilege.
In April 2010, the IRS received information from French authorities concerning United States persons with undisclosed bank accounts at HSBC Bank. The IRS alleged that it has information regarding accounts held by Pelsa Business Inc. ("Pelsa") for the years 2005 through 2007. According to the information provided to the Internal Revenue Service ("IRS"), Eli Chabot is the beneficial owner of Pelsa.
On June 20, 2012, the IRS issued summonses to Eli and Renee Chabot requesting that they appear on July 13, 2012, to give testimony and produce documents about their foreign bank accounts for the period from January 1, 2006, to December 31, 2009. The Chabots' attorney notified the IRS that the Chabots would not appear, were asserting their Fifth Amendment privilege against self-incrimination, and would not produce the requested documents. The IRS amended the two summonses on November 16, 2012, limiting their scope to only those documents required to be maintained under 31 C.F.R. § 1010.420. The Chabots continued to claim the Fifth Amendment privilege, and the IRS filed a petition to enforce the amended summonses on May 14, 2014.
Before the District Court, the Chabots claimed that, although the contents of the records sought might not be protected by the Fifth Amendment, their act of producing the documents was protected. The Chabots specifically claimed that responding to the summonses might subject them to prosecution for their failure to file the same information in an annual Report of Foreign Bank and Financial Accounts. The Chabots also claimed that any exception to the Fifth Amendment privilege based on the required records exception should not apply in this case. The District Court held that the required records exception applied and thus the Fifth Amendment did not prohibit production of the documents sought. The District Court therefore granted the petition to enforce the summonses.
The Chabots appealed the District Court's grant of the IRS petition to enforce summonses for foreign bank account records that 31 C.F.R. § 1010.420 requires the Chabots to keep.
Did the foreign bank account records that were required to be kept by 31 C.F.R. § 1010.420 fall within the required records exception to the Fifth Amendment privilege and therefore had to be produced in response to IRS summonses?
The Court affirmed the District Court's grant of the IRS's petition because § 1010.420 is essentially regulatory, requires account owners to retain records that they customarily keep, and requires retention of records that have public aspects. The Court held that the Chabots have failed to raise valid policy or other reasons as to why their account records should not be included in the required records exception to the Fifth Amendment privilege.
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